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Full text of "Fiscal years 1994 and 1995 budget authorizations and oversight for the U.S. Customs Service, the U.S. International Trade Commission, and the U.S. Trade Representative : hearing before the Subcommittee on Trade of the Committee on Ways and Means, House of Representatives, One Hundred Third Congress, first session, April 21, 1993"

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nSCAL YEARS 1994 AND 1995 BUDGET AUTHOR- 
IZATIONS AND OVERSIGHT FOR THE U.S. CUS- 
TOMS SERVICE, THE U.S. INTERNATIONAL 
TRADE COMMISSION, AND THE U.S. TRADE 
REPRESENTATIVE 

Y 4. W 36: 103-7 

Fiscil Years 1994 md 1995 Budget ft... 

BEFORE THE 

SUBCOMMITTEE ON TRADE 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

FIRST SESSION 



APRIL 21, 1993 



Serial 103-7 



Printed for the use of the Committee on Ways and Means 







'Oir 



U.S. GOVERNME>4T PRINTING OFFICE 
fi*-144 CC WASHINGTON : 1993 



For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office. Washington. DC 20402 
ISBN 0-16-041025-8 



nSCAL YEARS 1994 AND 1995 BUDGET AUTHOR- 
IZATIONS AND OVERSIGHT FOR THE U.S. CUS- 
TOMS SERVICE, THE U.S. INTERNATIONAL 
TRADE COMMISSION, AND THE U.S. TRADE 
REPRESENTATIVE 

Y 4. W 36; 103-7 

Fiscil Years 1994 and 1995 Budget A... 

nii/iuiING 

BEFORE THE 

SUBCOMMITTEE ON TRADE 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

FIRST SESSION 



APRIL 21, 1993 



Serial 103-7 



Printed for the use of the Committee .on Ways and Means 



M/* 




•■^525/--, 



U.S. GOVERNMENT PRINTING OFFICE ^^^'^^'fTf^^ 
S*-''»4 CC WASHINGTON : 1993 



For sale by the U.S. Government Printing Office 
Supenntendent of Documents. Congressional Sales Office. Washington. DC 20402 
ISBN 0-16-041025-8 



COMMITTEE ON WAYS AND MEANS 
DAN ROSTENKOWSKI, Illinois, Chairman 



SAM M. GIBBONS, Florida 
J.J. PICKLE, Texas 
CHARLES B. RANGEL, New York 
FORTNEY PETE STARK. California 
ANDY JACOBS, Jr.. Indiana 
HAROLD E. FORD, Tennessee 
ROBERT T. MATSUI. California 
BARBARA B. KENNELLY, Connecticut 
WILLIAM J. COYNE. Pennsylvania 
MICHAEL A. ANDREWS, Texas 
SANDER M. LEVIN, Michigan 
BENJAMIN L. CARDIN, Maryland 
JIM MCDERMOTT, Washington 
GERALD D. KLECZKA, Wisconsin 
JOHN LEWIS, Georgia 
L.F. PAYNE, Virginia 
RICHARD E. NEAL. Massachusetts 
PETER HOAGLAND, Nebraska 
MICHAEL R. MCNULTY, New York 
MIKE KOPETSKI. Or»^on 
WILLIAM J. JEFFERSON. Louisiana 
BILL K. BREWSTER. Oklahoma 
MEL REYNOLDS. Illinois 



BILL ARCHER, Texas 
PHILIP M. CRANE, Illinois 
BILL THOMAS, California 
E. CLAY SHAW, Jr., Florida 
DON SUNDQUIST, Tennessee 
NANCY L. JOHNSON, Connecticut 
JIM BUNNING, Kentucky 
FRED GRANDY, Iowa 
AMO HOUGHTON, New York 
WALLY HERGER, California 
JIM McCRERY, Louisiana 
MEL HANCOCK, Missouri 
RICK SANTORUM, Pennsylvania 
DAVE CAMP. Michigan 



Janice Mays. Chief Counsel and Staff Director 
Charles M. BRAJN, Assistant Staff Director 
PHILUP D. MOSELEY, Minority Chief of Sta/f 



Subcommittee on Trade 

SAM M. GIBBONS, F'lorida, Chairman 



DAN ROSTENKOWSKI, Illinois 
ROBERT T. MATSUI. California 
BARBARA B. KENNELLY, Connecticut 
WILLIAM J. COYNE, Pennsylvania 
L.F. PAYNE, Virginia 
RICHARD E. NEAL, Massachusetts 
PETER HOAGLAND. Nebraska 
MICHAEL R. McNULTY, New York 



PHILIP M. CRANE, Illinois 
BILL THOMAS. California 
E. CLAY SHAW. Jr.. Florida 
DON SUNDQUIST, Tennessee 
NANCY L. JOHNSON. Connecticut 



(II) 



CONTENTS 



Page 

Press release of Monday, April 5, 1993, announcing the hearing 2 

WITNESSES 

U.S. Trade Representative, Hon. Michael Kantor 4 

U.S. Customs Service, Michael H. Lane, Acting Commissioner, Sam Banks, 
Acting Deputy Commissioner, and C. Wayne Hamilton, Director, Budget 

Division 41 

U.S. International Trade Commission, Hon. Peter S. Watson, Vice Chairman, 

and Hon. Janet A. Nuzum, Commissioner 62 

American Association of Exporters and Importers, Eugene J. Milosh, Presi- 
dent 83 

SUBMISSIONS FOR THE RECORD 

Copper & Brass Fabricators Council, Inc., Joseph L. Mayer and Mi-Young 
Kim, statement and attachment 91 

PRO-NAFTA, Hon. Saul N. Ramirez, Jr., Mayor, City of Laredo (Tex.), state- 
ment and attachments 97 

(III) 



FISCAL YEARS 1994 AND 1995 BUDGET AU- 
THORIZATIONS AND OVERSIGHT FOR THE 
U.S. CUSTOMS SERVICE, THE U.S. INTER- 
NATIONAL TRADE COMMISSION, AND THE 
U.S. TRADE REPRESENTATIVE 



WEDNESDAY, APRIL 24, 1993 

House of Representatives, 
Committee on Ways and Means, 

Subcommittee on Trade, 

Washington, D.C. 
The subcommittee met, pursuant to call, at 2:30 p.m., in room 
1100, Longworth House Office Building, Hon. Sam M. Gibbons 
(chairman of the subcommittee) presiding. 

[The press release announcing the hearing follows:! 



(1) 



FOR IMMEDIATE RELEASE 
MONDAY, APRIL 5, 1993 



SUBCOMMITTEE ON TRADE #5 
COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLDG. 
WASHINGTON, D.C. 20515 
TELEPHONE: (202) 225-1721 



THE HONORABLE SAM M. GIBBONS (D. , FLA.), CHAIRMAN, 

SUBCOMMITTEE ON TRADE, COMMITTEE ON WAYS AND MEANS, 

U.S. HOUSE OF REPRESENTATIVES, ANNOUNCES A PUBLIC HEARING ON 

FISCAL YEARS 1994 AND 1995 BUDGET AUTHORIZATIONS AND OVERSIGHT FOR 

THE U.S. CUSTOMS SERVICE, THE U.S. INTERNATIONAL TRADE COMMISSION, 

AND THE U.S. TRADE REPRESENTATIVE 

The Honorable Scun M. Gibbons (D. , Fla.), Chairman of the Subcomnit- 
tee on Trade, Comnittee on Ways and Means, U.S. House of Representatives, 
today announced that the Subcommittee will hold a public hearing on 
budget authorizations for the U.S. Customs Service, the U.S. Interna- 
tional Trade Commission, and the Office of the U.S. Trade Representative 
for fiscal years 1994 and 1995. Testimony is also invited on the pro- 
posal to make permanent all customs user fee authority set forth in the 
President's Economic Plan submitted February 17, 1993. 

In addition to reviewing the President's budget request, this 
hearing will provide an opportunity for Subcommittee oversight of the 
current operations of these key trade agencies. 

The hearing will be held on Wednesday, April 21, 1993, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 2:30 p.m. 

DETAILS FOR SUBMISSION OF REQUESTS TO BE HEARD : 

Requests to be heard must be made by telephone to Harriett Lawler, 
Diane Kirkland, or Karen Ponzurick [telephone (202) 225-1721] by close 
of business Tuesday, April 13, 1993. The telephone request should be 
followed by a formal written request to Janice Mays, Chief Counsel and 
Staff Director, Committee on Ways and Means, U.S. House of Representa- 
tives, 1102 Longworth House Office Building, Washington, D.C. 20515. The 
Subcommittee staff will notify by telephone those scheduled to appear as 
soon as possible after the filing deadline. Any questions concerning a 
scheduled appearance should be directed to the Subcommittee office 
[(202) 225-3943]. 

In view of the limited time available to hear witnesses, the Subcom- 
mittee may not be able to accommodate all requests to be heard. Those 
persons and organizations not scheduled for an oral appearance are 
encouraged to submit written statements for the record of the hearing. 
All persons requesting to be heard, whether they are scheduled for oral 
testimony or not, will be notified as soon as possible after the filing 
deadline. 



(MORE) 



witnesses scheduled to present oral testimony are requested to 
briefly summarize their written statements. The full statement will be 
included in the printed record. 

In order to assure the most productive use of the limited amount of 
time avail2U)le to question hearing witnesses, witnesses scheduled to 
appear before the Subcommittee are required to submit 150 copies of their 
prepared statement to the Subcommittee on Trade office, room 1136 Long- 
worth House Office Building, at least 24 hours in advemce of their 
scheduled appearance. Failure to do so may result in the witness being 
denied the opportunity to testify in person. 

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE; 

Any interested person or organization may file written comments for 
inclusion in the printed record of the hearing. Persons submitting 
written comments for the printed record should submit at least six f6^ 
copies of their comments by the close of business Wednesday, April 21, 
1993, to Janice Mays, Chief Counsel and Staff Director, Committee on Ways 
and Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
for the printed record of the hearing wish to have their statements 
distributed to the press and the interested public, they may provide 
100 additional copies for this purpose to the Subcommittee office, 
room 1136 Longworth House Office Building, before the bearing begins. 

FORMATTING REQUIREMENTS : 

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted 
for the printed record or any written comments in response to a request for written comments must conform to the 
guidelines listed below. Any statement or exhibit not in compliance with these guidelines mil not be printed, but «rill be 
maintained in the Committee files for review and use by the Committee. 

1. All statements and any accompanying exhibits for printing must be typed in single space on legal-stic paper and 
may not exceed a total of 10 pages. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit 
material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications 
vrill be maintained in the Committee files for review and use by the Committee. 

3. Statements must contain the name and capacity in which the witness tvill appear or, for written comments, the 
name and capacity of the person submitting the statement, as well as any clients or persons, or any organization 
for whom the vritness appears or for whom the statement is submitted. 

4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where 
the witness or the designated representative may be reached and a topical outline or summary of the comments 
and recommendations in the full statement This supplemental sheet will not be included in the printed record. 

The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits 
or supplementary material submitted solely for distribution to the Members, the press and the public during the course of 
a public hearing may be submitted in other forms. 

********** 



Chairman Gibbons. Grood afternoon. The hearing will come to 
order. 

This is the meeting of the Trade Subcommittee of the Ways and 
Means Committee and we are looking at the 1994-95 budget au- 
thorization for Mr. Kantor's Office of the U.S. Trade Representa- 
tive, and also for the other agencies that come within our general 
jurisdiction. 

And I understand that Mr. Kantor has a 4 p.m. appointment and 
we want to make sure that he is able to keep that appointment. 

Mr. Kantor, you are a very busy person. You may proceed as you 
wish. Let me ask if any of the members have any statements they 
would like to make, first of all? 

Mr. Crane. 

Mr. Crane. Thank you, Mr. Chairman. And I, too, want to wel- 
come you, Mr. Kantor. Budgets are an uncomfortable topic for dis- 
cussion in this time and place and it is even more uncomfortable 
for those charged with making decisions on how to spend the tax- 
payer's hard earned dollars. It is a cliche that has starkly revisited 
on us as we deal with the debt brought by uncontrolled spending. 
There is no time like now to be more responsible with the tax- 
payer's money. Unfortunately, that means belt tightening, and I 
think this subcommittee will be diligent in searching for every rea- 
sonable savings. I know I will. 

To you, Mr. Kantor, I say we recognize the enormity of the tasks 
you must perform with a small agency and limited resources. And 
as I have before, I urge you to press forward with implementation 
of the NAFTA agreement before this historic agreement is crucified 
by the ever increasing demands of special interests. It offers the 
best and most immediate stimulus for the U.S. economy; it means 
more jobs. 

I am concerned that the side deal negotiations will produce a re- 
sult that makes NAFTA unacceptable to those of us who cherish 
our Nation's sovereignty and who shutter to think of huge trilateral 
commissions to be financed by taxing or deficit spending, and I look 
forward to hearing your assessment of the side deal negotiations 
and your idea of wnat the side deals may add to NAFTA. 

And I have remarks for later, Mr. Chairman, when we have the 
representative from the International Trade Commission, but with 
that, I want to welcome Mr. Kantor and look forward to working 
with you. 

Mr. Gibbons. All right, Mr. Ambassador. Go right ahead. 

STATEMENT OF HON. MICHAEL KANTOR, U.S. TRADE 
REPRESENTATIVE 

Ambassador Kantor. Thank you, Mr. Chairman. I will truncate 
my statement and with the committee's permission submit the fiill 
statement for the record. 

Mr. Gibbons. Without objection. 

Ambassador Kantor. Let me begin by saying that I am pleased 
to present the budget authorization request for the Office of USTR 
for fiscal years 1994 and 1995. Let me indicate that this is a 
straightforward extension of existing authority with only a very 
modest budget increase. I would like to give you a quick overview 
of our very full agenda and the ambitious schedule that we need 



to meet at USTR. I think that the committee is fully aware of our 
extensive agenda. 

President Clinton has put forth a visionary program to strength- 
en our economy. Economic growth from expanded trade is a crucial 
part of that program. The administration's trade agenda is a mix- 
ture of enforcing commitments and reaching closure on current ne- 
fotiations, protecting the U.S. creativity from piracy, opening mar- 
ets to goods and services, grappling with the problems posed by 
the intersection of trade and the environment, and moving ahead 
to strengthen ties with nations of the Asian Pacific region. 

One of the issues we are addressing is the renewal of fast track 
authority for the Uruguay round of GATT. The President indicated 
in a formal statement that he will seek authority to close this 
round on December 15 and give the Congress 120 days notice. We 
want to complete this Uruguay round. This is the single most im- 
portant step to opening foreign markets to U.S. goods, agricultural 
products, and services. 

However, I would note that the Dunkel text could be improved. 
Our short-term goal is to secure basic United States-European 
Community agreements on market access to be built on to create 
a larger market access package which would increase exports of 
U.S. goods agricultural products and services. 

Mr, Chairman, less than 30 minutes ago we reached agreement, 
and I announced the results of our discussions with the Europeans. 
They have removed the discrimination against our heavy electrical 
equipment sector which means $20 billion a year now in procure- 
ment will be open to us that wasn't opened. They refused to remove 
the telecommunications procurement discrimination, so the United 
States will invoke sanctions in that realm. We will go forward with 
bilateral and multilateral discussion. 

Mr. Chairman, and members of the committee, I think this is a 
positive development, even though we did not get the telecommuni- 
cations sector opened, we did open the heavy electrical equipment 
market. We agreed to open $7 to $8 billion more in markets in both 
countries in what we call category A, goods and services, which are 
procured by the European government agencies and by our Govern- 
ment. We will also institute a joint independent study to determine 
how to open our markets comparably so both the United States and 
the European Community have equal access to each other's mar- 
kets in government procurement. This is a step forward in our rela- 
tionship and, frankly, I believe it bodes well, for the Uruguay 
round. 

As you know, the Generalized System of Preferences (GSP) pro- 
gram creates markets in developing countries and is an important 
tool for the promotion of our trade policy. This administration will 
seek renewal of the GSP program for 1 year to sustain this impor- 
tant effort. 

As Congressman Crane has indicated, the NAFTA will produce 
greater economic and employment growth in the United States and 
the upward harmonization of wages, worker standards, and en- 
hanced environmental quality. This administration is committed to 
negotiating strong supplemental agreements which break new 
ground in three areas: environmental quality, workers' standards 
and import surge concerns, I should note however, that the agree- 



ment already addresses some of the concerns in sections 801 and 
802 of the agreement itself 

We hope to create strong labor and environmental commissions 
and to use enforcement mechanisms to make sure these commis- 
sions are effective without adversely affecting sovereignty or exer- 
cising supemational powers. We plan to submit the entire package 
to the Congress in time to achieve our goal of implementing the 
NAFTA by January 1, 1994. 

Following the leadership of the President, the U.S. Trade Rep- 
resentative s office in conjunction with the entire administration, 
will focus on the failure of Japan to followthrough on commitments 
to address trade in auto parts, automobiles, telecommunications, 
semiconductors, construction, computers, super computers and 
other critical areas. 

Let me note something I think will interest this committee. 
There were $96 billion of exports from Japan to the United States 
in 1992. Sixty-five percent of those exports were in the six areas 
I mentioned. U.S. exports to Japan in these areas are very small. 
We find the market basically closed. It is the intention of this ad- 
ministration to open those markets in whatever way we can. 

President Clinton met with Prime Minister Miyazawa last week. 
He had a very candid and frank discussion with the Prime Minister 
about these specific areas. The Japanese Grovernment has agreed 
to a process where we would have talks on how to achieve measur- 
able success and results. We will insist that Japan assume its 
share of responsibility in the Uruguay round. Neither the United 
States nor the European community believes that Japan has been 
as forthcoming as they should have been. 

We are going to have a meeting in Toronto with the representa- 
tives of Japan, Canada, the European Community, and the United 
States in order to engage fully the most important parties to the 
round in this new drive toward producing an extensive and impor- 
tant market access package. 

We share the objective of the Congress of this committee of open- 
ing foreign government procurement markets to U.S. exporters. 

Our efforts to open the European Community's market in the 
telecommunications area reaffirms our commitment to this objec- 
tive. Let me assure this committee that we will pay strict attention 
to title VII and will continue to enforce the law 

Mr. Chairman — 40 percent of our trade is with Asia. It is our 
largest trading region. It is also the fastest growing economic re- 
gion in the world. Frankly, we have not paid enougn attention to 
Asia; this crosses both party and ideological lines this year. The 
United States is chair of the Asian Pacific Economic Cooperation 
(APEC) forum. We plan to use APEC and other forums to open up 
more markets in Asia and begin to build a framework around that 
trading area which will be helpful to U.S. workers and U.S. jobs 
but also it will be an enormous opportunity in terms of connecting 
American free trade agreements with a growing Asian trading rela- 
tionship. And I think the United States as the hub of that would 
bear great fruit for us in terms of economic growth and of course 
leading global growth. 

The USTR staff is in the process of completing a review of our 
trading partners protection of intellectual property rights and mar- 



ket access issues under the Special 301 provision of the 1974 Trade 
Act. Unfortunately, because those protections have not been as 
forthcoming in many areas as we would have wished, the results 
will be announced on April 30. We are firmly committed to protect- 
ing U.S. intellectual property. Our recently entered into agreement 
with the Philippines notes how focused we are on this area. 

USTR recently issued a report on national trade estimates and 
foreign trade barriers which identified 44 countries that maintain 
are extensive trade barriers. We have begun to review the most sig- 
nificant areas that can be addressed through the use of section 301 
if our current bilateral and multilateral efforts are not successful. 

When I became the USTR on January 22, I asked the question 
of whether or not we had any ongoing section 301 actions, not for 
the purpose of enforcement for the sake of enforcement, just as a 
matter of trying to establish an inventory for the office and try to 
understand what we had on our plate. I was surprised to find there 
were no 301 actions. I then asked a question you might ask, Mr. 
Chairman: Is every country in the world living up to its trade 
agreements with the United States? And I got the obvious answer: 
No. I have asked for a review of every trade agreement that USTR 
has. We are reviewing the results of this survey now and I will look 
forward to reporting to the Congress. 

Let me indicate that the staff is correct, not all countries are liv- 
ing up to their agreements and there may be some proper subiects 
for action among the more pernicious of the violations that nave 
been occurring. 

We have recently completed a third round of accelerated elimi- 
nation of tariffs under the United States-Canada Free Trade Agree- 
ment. Tariffs of 100 items valued at $100 billion were eliminated. 
We continue to work well with the Canadian Government on this 
and as Congressman Crane noted before, on the supplemental 
agreements to the NAFTA. 

My March visit to Europe emphasized USTR's interest in the en- 
gagement of the Uruguay round, on the failure of the European 
agreement to implement the Blair House agreement on agriculture 
and other discriminatory actions by the Europeans, especially in 
the audio visual area, which has concerned us greatly. Let me indi- 
cate we also talked about Airbus. 

I am pleased to announce that as a result of that visit and good 
staff work on the part of both USTR staff and the staff of the Euro- 
pean Community trade minister's office, the European Community 
is well on its way of implementing all aspects of the Blair House 
agreements. Until now they had not done so and now they have 
taken almost all actions necessary in the area of oil seeds. 

Let me speak for a moment on the purpose for which we are 
here. We are proposing a 2-year extension of the USTR authoriza- 
tion through 1994 and 1995. Our request is for a straightforward 
continuation of the existing authorization. Authorization amounts 
for 1994 are $20,143,000 and 1995 of $20,419,000 are the same as 
in the present fiscal year 1994 budget. These are very modest 
budget levels. 

I might note, as you would know, Mr. Chairman, that in fiscal 
year 1991, the budget was $20 milHon; 1992, $20.4 million; with 



the supplemental $20 million; in 1993, $20.3 and $20.94 million in 
1995. So basically USTR's budget has been a straight line. 

Our full-time employees will drop by five from a total of 162 to 
157 next year. We are going to meet the President's commitment 
to reduce administrative expenses by 14 percent by 1997, fiscal 
year 1997. 

I want to note with pride that this staff is the hardest working 
group of people I have ever been associated with. We are working 
harder for less, given inflation, with a much larger agenda than 
ever. I am extremely pleased and honored to be working with the 
USTR staff. If you were at our offices on Saturday or Sunday, you 
would see many of the staff members there. They take pride in the 
work they do. 

The reductions that I have spoken of will be hard to achieve, but 
I fully support the President's plan to reduce the administrative ex- 
penses. We have already taken actions this year, including freezing 
hiring, dismissing temporary employees, reducing overtime, adopt- 
ing tougher travel policies for employees cutting all new equipment 
purchases, and eliminating two automobiles and two drivers, 40 
percent of our total worldwide automobiles. I know it is somewhat 
de minimis compared to other agencies that might come before you, 
but we did that. 

We will continue to achieve budget savings in 1994 through addi- 
tional management improvements. We will comply with the Presi- 
dent's plan to trim administrative expenses. 

With that, Mr. Chairman, I appreciate your indulgence. I look 
forward to your questions and members of the committee. And 
again, I am honored and pleased to appear before you. 

[The prepared statement follows:] 



Testimony of 

Ambassador Michael Kantor 

United States Trade Representative 

Before the Subcommittee on Trade 

Committee on Ways and Means 

United States House of Representative 

April 21, 1993 

I welcome this opportunity to appear before the Subcommittee 
today to present the budget authorization request for the Office 
of the United States Trade Representative. Although little time 
has passed since the last time I was before you, a great deal has 
transpired in the trade arena and I look forward to bringing you 
up to date on issues of mutual interest and concern. 

As members of this Subcommittee are aware, the Office of the 
United States Trade Representative has primary responsibility for 
developing and coordinating U.S. international trade, commodity, 
and trade-related direct investment policy, articulating trade 
policy for the Administration and for leading negotiations with 
other countries on these matters. 

We carry out this mission with a small but highly motivated, 
and professional staff that is dedicated to promoting U.S. 
economic interests. 

USTR's authorization and budget request for Fiscal Years 
1994 and 1995 represents a straightforward extension of existing 
budgetary authority, with a very modest increase. Therefore, I 
will focus my testimony on an overview of the ambitious schedule 
before USTR so that a better understanding of our request will be 
considered in the context of our full agenda. 

Full Agenda 

Since taking office in January, President Clinton's highest 
priority has been to strengthen the U.S. economy. Accordingly, 
the President has put forth a visionary program designed to 
reduce the budget deficit and increase investment in areas 
critical to our future economic strength. 

Implementation of the President's strategy starts with the 
enactment of the President's economic program. Yet, as members 
of this subcommittee are acutely aware, and the President stated 
in his American University speech, economic growth from expanded 
international trade is a crucial part of our economic strategy 
and future security. 

This last recession and the modest recovery we have seen are 
distinct from previous experience in that unemployment has 
remained disturbingly high. Increasing U.S. exports is key to 
turning that problem around. 

Last year alone, 6.7 million U.S. jobs were created by 
trade. For every billion dollars in exports, 15,000 jobs are 
created. Trade is clearly an engine which can drive economic 
recovery and job growth. 

The Administration's trade agenda for fiscal years 1993 and 
1994 is a mix of enforcing commitments, reaching closure on 
negotiations begun and found to potentially advance U.S. 
interests, protecting U.S. creativity from piracy, fighting to 
open markets to U.S. goods and services, grappling with the 
complex issues posed by the intersection of trade and the 
environment, and moving ahead with initiatives to strengthen our 
trading ties with the rapidly-growing nations of the Asian- 
Pacific. 

Many of the issues must be addressed in the next year. These 
issues include: 



10 



"Renewal of "Fast Track" Authority for GATT 

As you know, current negotiating authority and fast track 
implementation procedures may not be used to conclude the Uruguay 
Round of GATT. Those provisions required the President to notify 
the Congress by March 2, 1993, of his intent to enter into an 
agreement before June 1, 1993. Because the negotiations were not 
satisfactorily concluded by March 2, no such notification could 
be made. 

The draft bill that will be sent to Congress would extend 
Congressional "fast track" procedures to only the Uruguay Round 
implementing bill. This would require the President to notify 
Congress no later than December 15, 1993, of his intent to enter 
into such agreement on April 15, 1994 — in effect providing us 
with an additional ten and one-half months to conclude the Round. 

The bill would also expand the 90-day period between 
notification to the Congress and signature of the agreement to 
120 days, to afford ample time for consultation between the 
Administration and Congress on draft implementing legislation. 

Since additional time is given for consultation between the 
Administration and Congress, additional time would also be 
provided in the bill for the submission of private sector advice. 
In all other respects, the fast track procedures would remain the 
same. 

I want to emphasize that the Administration is seeking this 
authority only for the Uruguay Round. However, the President is 
deeply committed to negotiating a free trade agreement with 
Chile. The Administration will seek a separate extension of fast 
track authority for future agreements of this type. We will 
consult fully with Congress on this matter. 

I might note that the fast track announcement, and the fact 
that it dealt solely with the Uruguay Round, has sent an 
important signal to U.S. trading partners about the priority that 
the Administration attaches to a strong and open multilateral 
trading system, and its determination to complete the Round. 

" Completing the Uruguay Round of GATT 

The Uruguay Round, involving more than 100 nations, began in 
1986. The failure to complete the Round has been a source of 
disappointment and frustration to the United States and many of 
our trading partners. A successful Round would lower tariff and 
non-tariff barriers around the world, and establish new 
multilateral rules for world trade. 

Completing the Round is the single most important step we 
can take to open foreign markets around the world to U.S. 
manufactured goods, agricultural products and services. Our most 
significant trading partners have underscored their commitment to 
complete the Round this year. 

USTR, in cooperation with a number of other agencies, has 
identified areas where the Draft Final Act, the so-called Dunkel 
Draft, could be improved. We have also set our sights on an 
ambitious market access package, which would bring benefits to 
U.S. companies and workers, by increasing exports of U.S. 
manufactured goods, agricultural products and services. 

The short-term goal is to secure basic U.S. - EC agreement 
on market access and building on that to create a larger market 
access package, including significant contributions from Japan 
and key developing countries. Accordingly, a series of meetings 
is planned in the next three months with the EC, Canada and 
Japan. 

Our clear objective is to produce concrete progress by the 
time of the G-7 summit in Tokyo in July. 



11 



• Completing the North American Free Trade Agreement 

The President's desire is for a North American Free Trade 
Agreement that creates a formidable competitive edge for U.S. 
products in domestic and global markets. As part of the 
President's economic program, NAFTA prepares us for the 
competitive challenges the future will bring. 

Augmented by strong and enforceable side agreements, NAFTA 
will result in greater economic and employment growth in the 
United States and the upward harmonization of wages, worker 
standards and enhanced environmental quality throughout North 
America. Mexico is already our second largest export market for 
manufactured goods. With the further reduction of tariffs in 
NAFTA, we anticipate that market will grow further. 

Consequently, USTR has committed itself to negotiating 
strong supplemental agreements which break new ground in three 
areas: environmental quality, worker standards, and import surge 
concerns . 

The Administration is committed to negotiating agreements 
that will ensure improved enforcement of the laws in Mexico. We 
also hope to create strong labor and environment commissions with 
the necessary teeth to review national enforcement, and to hear 
and follow up on complaints from citizens about deficient 
enforcement. 

We will not sacrifice substance for speed but it would be 
our hope to negotiate the supplemental agreements in a timely 
fashion, to enable the whole NAFTA package to go to Congress for 
implementation in time for NAFTA to be effective on January 1, 
1994. Plans for border cleanup and worker retraining and 
adjustment, spearheaded by EPA, State and Labor, are crucial 
parts of the overall NAFTA package. 

" GSP Renewal 

The Administration, through USTR, will seek a renewal of the 
Generalized System of Preferences (GSP) program. 

This program promotes economic development and creates 
markets in developing countries and is an important tool for the 
promotion of our trade policy. In past years, GSP has been used 
to help secure gains in both intellectual property and worker 
rights areas. We want to sharpen its use in these areas. 

Our initial aim is to prevent the progreA from lapsing on 
July 4, through a short-term extension. During the extension 
period, we would take a hard look at the progran and consider 
ways of improving it. We are currently working on an extension 

proposal. 

° Japan 

No single trade issue had proven more complex or contentious 
than those arising from our bilateral problems with Japan. 
Therefore, it is vitally important that we make progress on our 
market access problems with Japan, many of which have been 
hurting U.S. companies and workers for more than a decade. 

USTR will place particular focus on assuring Japan follows 
through on commitments already made to the U.S. government and 
addressing on-going sectoral issues such as auto parts, 
automobiles, telecommunications, semiconductors, construction, 
computers, and supercomputers. We will also insist on Japan 
assuming its share of the responsibility for the Uruguay Round. 



12 



° China 

USTR has aggressively monitored implementation of the market 
access agreement signed in 1992. During 1992, USTR negotiators 
travelled twice to Beijing, pressing the Chinese to fulfill 
pledges made under the Agreement to open their markets to key 
U.S. export sectors. USTR is also discussing additional market 
openings for key sectors, beginning with computers and integrated 
circuits, heavy machinery, medical equipment, and distilled 
spirits. 

On intellectual property rights, the Chinese continue to 
implement faithfully the agreement that we signed in January 
1992. As a result of the agreement and follow-on discussions 
with the Chinese, U.S. agrichemical and pharmaceutical 
manufacturers now can obtain product patent protection and, for 
products patented in the United States between 1986 and 1993, 
administrative protection in China. 

Finally, because China's market to U.S. services 
remains largely closed, USTR has — with industry support — 
constructed a new trade initiative for U.S. service firms 
designed to secure fair and comparable access for U.S. firms. 

"Title VII 

USTR conducts the annual investigation of discrimination in 
foreign government procurement, provided for in Title VII of the 
1988 Trade Act. The investigation is a detailed, resource- 
intensive one, employing many information sources — from our 
embassies, from the private sector, from various agencies of the 
government — and significant staff time. 

An interagency group, led by USTR, examines in some detail 
the procurement practices and policies of countries which sell to 
the U.S. government. The review involves a tremendous amount of 
cooperation among agencies of the executive branch, as well as 
with the Congress. 

I would like to emphasize that we share the objective of the 
Congress, reflected in the Title VII statute, of opening foreign 
government procurement markets to U.S. exporters. Our efforts 
under Title VII to open the EC's market in the telecommunications 
and heavy electrical sectors reaffirms our commitment to this 
objective. We will continue to work diligently to see that Title 
VII concerns are addressed. 

"Asia Pacific Economic Cooperation (APEC) 

The Asia-Pacific region is collectively America's largest 
trading partner and the most dynamic region of economic growth in 
the world. Our economic future is heavily bound up with Asia, 
yet America's economic presence and leadership in the region has 
been overshadowed by a decade-long trend of steadily increasing 
Japanese economic presence in the region. 

This year, the United States chairs the 15 nation Asia 
Pacific Economic Cooperation (APEC) and will host the APEC 
ministerial meeting in November in Seattle. Our position in 
APEC, at the time of a new Administration in Washington, offers 
the United States a great opportunity to strengthen our ties with 
this critical region. 

" Intellectual Property Issues 

USTR staff is in the process of completing review of our 
trading partners' protection of intellectual property rights 
(IPR) and market access issues under the "Special 301" provisions 
of the 1974 Trade Act. The results of the review must be 



13 



announced by April 30. Currently, negotiations are on-going with 
a number of countries seeking to avoid designation as "priority 
foreign countries." 

While I am not currently in the position to name specific 
countries against which we may recommend action, I want to 
underscore the Administration's commitment to protecting U.S. 
intellectual property and engaging other countries at all levels. 
We recently entered into an agreement with the Philippines 
committing them to making the legislative and administrative 
changes needed for a world class intellectual property regime. 
USTR will continue to work aggressively to enforce U.S. 
intellectual property rights worldwide. 

Special 301 has been a very valuable statute, but ultimately 
its credibility rests on our willingness to take strong action 
against those countries which contribute to piracy. 

•Section 301 Review 

On March 31, 1993, we released the eighth annual National 
Trade Estimates (NTE) report on foreign trade barriers. 
This report helped us catalog information on various trade issues 
and facilitated the establishment of our trade priorities and 
allocation of resources. Despite the evidence of extensive trade 
barriers maintained in 44 nations, there were no pending Section 
301 investigations at the time the Administration took office. 

USTR staff have begun a comprehensive review of the most 
significant barriers in the NTE Report and are identifying those 
barriers that can best be addressed through the use of Section 
301, if our current bilateral or multilateral efforts do not 
result in market-opening measures. 

" Canada 

We recently achieved a successful completion of the third 
round of accelerated elimination of tariffs under the U.S. - 
Canada FTA. Agreement was reached far earlier than scheduled and 
tariffs on over 100 items, valued at approximately one billion 
dollars in two-way trade, were eliminated. The previous two 
rounds of accelerated tariff elimination resulted in early 
removal of tariffs on over $8 billion in bilateral trade. 

Lingering disputes, particularly with respect to beer and 
wheat require continued discussions with Canadian officials, 
however . 

° The European Community (EC). 

USTR has moved strongly on certain disputes with the EC, 
which have clouded this critical trading relationship. The 
closed nature of the EC procurement market has frustrated 
negotiations on the GATT Procurement Code and been a major 
obstacle for U.S. exporters for years, especially in the 
telecommunications sector. 

My visit to Europe in late March and the efforts of USTR in 
the short-term emphasize the Administration's interest in renewed 
engagement in the Uruguay Round, discussions about the utilities 
directive, the failure of the EC to implement aspects of the 
Blair House agreement on agriculture, discriminatory actions 
against U.S. audiovisual interests, and our continuing concerns 
about EC subsidies to the Airbus consortium. 

I have secured a commitment from the EC that the oilseeds 
part of the Blair House agreement would be implemented in May, 
with other parts of the agreement being implemented in April. 

° Trade and the Environment 



14 



The issues involving the intersection of trade and 
environmental policy have proven to be extremely complicated and 
difficult. There has been no coherent U.S. policy in this area, 
and in the past, U.S. actions and policy in particular instances 
were unsupported in the international arena. 

USTR is actively involved, along with other agencies, in the 
effort to fashion a coherent Administration policy, which would 
serve the Administration's objectives of both expanded trade and 
sustainable development. 

USTR has chaired an interagency group which conducted a 
review focusing on three key areas: the use of trade measures to 
achieve environmental objectives; linkages between trade and 
environmental agreements; and process issues involving trade and 
the environment, including public participation and interagency 
coordination. We anticipate further effort will be necessary on 
this important but difficult issue. 

Authorization and Budget Recwest 

This authorization request seeks a two-year authorization 
. ^r the Office of the United States Trade Representative, 
covering fiscal years 1994 and 1995. Our request parallels prior 
year authorizations. We are requesting a straightforward 
extension of existing budgetary authorities. The proposed budget 
authorization level for fiscal year 1994 is $20,143,000, and for 
fiscal year 1995 the proposed level is $20,419,000. We are also 
proposing to continue the existing authority allowing USTR to 
carry over up to $2,500,000 of its annual budget until expended. 

For FY '94 our request is a modest one. We are requesting 
$20.1 million in budget authority. This represents only $151,000 
more than the level appropriated last year ($19.9 million). This 
request incorporates the features of the President's program to 
reduce full-time equivalent positions and to cut administrative 
expenses. Compared with the fiscal year 1993 appropriation level 
we have cut those positions by 5 and trimmed our administrative 
expenses by slightly more than 3 percent. These cuts for the 
organization charged with handling trade issues for one of the 
world's preeminent trading powers are not insignificant. 
Our budget request is $400,000 less than what is actually needed 
to keep pace with current service needs and in real dollar terms, 
is 8% less than three years ago. 

It is undisputed that the Office of the United States Trade 
Representative has a critical mission and, as my testimony 
outlines, a full agenda. It is a mission the staff at USTR and I 
have taken on with enthusiasm. At the negotiating table, we will 
be representing the interests of American workers, farmers and 
businessmen and women, just as my counterparts represent theirs. 
I will do so with a relatively small staff and budget — only 157 
full-time equivalent positions — and the assistance and 
participation of other agencies and departments. 

In closing, Mr. Chairman, I would remind the Committee that 
USTR's challenges are formidable, but so is our resolve. To 
effectively face these challenges, I urge the Committee to 
approve our request for a two-year authorization covering fiscal 
years 1994 and 1995. In past years you have strongly supported 
USTR's mission to open markets and to expand trade throughout the 
world. Your continued support remains critical to America's 
economic prosperity. 



15 

Chairman Gibbons. Mr. Kantor, we appreciate your statement, 
the thoroughness and the vigor with which it was dehvered. 

Your budget is modest and certainly will have no great opposi- 
tion in this committee. I would only warn you based upon the 
abundance of experience, I applaud the staff and their vigor, but 
you can't work day in and day out, week in and week out, weekend 
after weekend, long hours, without suffering a terrible loss of pro- 
ductivity, plus a loss of balance in judgment. So don't let them 
work too hard, Mr. Kantor. If you do, we will all pay the penalty 
if you push them too hard. 

Ambassador Kantor. We will try to be balanced, Mr. Chairman. 

Chairman Gibbons. Yes, you need that, particularly in your 
agency where you have got to think critically and originally and ob- 
jectively and you are on just about a 24 hour clock anyway because 
you deal with the world. And that is a difficult situation. 

Let me talk to you now, though, about the substance of what we 
are here for today. There are many members here, so I am going 
to try to keep myself down to the 5 minutes. 

You want a brief extension of fast track unincumbered just to 
complete the Uruguay round. When will you actually send that up 
for introduction so we can work a schedule out on it? 

Ambassador Kantor. Our request is presently at the Office of 
Management and Budget. As soon as it has been cleared bv that 
agency, the administration will submit it. Obviously, we would like 
as quick action as possible, working of course with the Congress. 

Chairman Gibbons. Thank you. 

Secondly, GSP expiring this year. I would imagine that you won't 
have time to make any substantive changes in it or perhaps only 
small substantive changes. Would you would just like a brief exten- 
sion of GSP? 

Ambassador Kantor. We are going to ask for a 1-year extension 
and we will not ask for any substantive changes in GSP. 

Chairman Gibbons. Fine. That is a good way to handle it. We 
all have such a big trade agenda. 

I am glad you pointed out the great market opportunities that 
we have in Asia. I have just come from a meeting with the New 
Zealanders. This committee is going to meet with the Australians 
on the second for breakfast, looking at the Asian region from their 
point of view. And we plan to visit Asia this August, as many of 
us as can get away. We need to pay attention to Asia, because 
there is an awful lot of trade opportunities and trade problems that 
arise there. In a macro sense, it is our biggest market and biggest 
potential market. 

I noticed in your statement that you said you were going to later 
on ask for fast track authority on, I think, Chile, as I recall, i 
would urge you to go ahead on that, if you can. Gret clearance 
throughout the agency. I don't think there would be any trouble in 
negotiating a free trade arrangement with Chile. 

Ambassador Kantor. We are deeply committed, this adminis- 
tration, as soon as the NAFTA is initiated, to begin negotiations 
with Chile in hopes and in expectation that they would join what 
then would become the Free Trade Agreement for the Americas. 
The President is committed to that and we believe that would be 
proper. 



16 

Chairman Gibbons. Yes, there is a whole market there that we 
tend to overlook all the time. That brings me to the Caribbean. And 
I know that the Caribbean together is about 40 million people in 
23 countries with whom we have a free trade agreement now. And 
they are concerned about the possibility of NAFTA discriminating 
against them. 

I would call to your attention that I have introduced some legis- 
lation that I would ask you all to look over that would grant on 
a temporary basis, only for 3 years, to the Caribbean the same 
privileges that come out of NAFTA to Mexico and then after that 
if they wanted to renew those or you wanted to, they would have 
to come in and negotiate those out with you. I would nope that you 
would give that consideration because I think we owe a special ob- 
ligation to the Caribbean. They are so small and so poor and so de- 
pendent u^on us and we have a very favorable balance of trade 
with them. In spite of the fact that we have a one-way preferential 
trtade arrangement with CBI — I ask to you cast your eyes down 
there in a sympathetic manner. 

When do you think you will have a conclusion of your supple- 
mental NAFTA agreements? Can you give us any timetable to 
think about? 

Ambassador Kantor. Well, of course that is dependent on many 
factors. I believe we will be finished in the midsummer in time to 
get the full package of implementation legislation plus the 
supplementals to the Congress either right before or right after 
your break in hopes that in the early fall we can have it passed. 
That would be in time, of course, for the January 1, 1994, imple- 
mentation date. 

Chairman Gibbons. And then if the Uruguay round fast track is 
successful and the negotiations are successful, we will be deep into 
the Uruguay round this time next year. 

Ambassador Kantor. We would hope and expect that would be 
true, Mr. Chairman. As you can see, we have quite an agenda to- 
gether. 

Chairman Gibbons. I want to commend you for our success in 
negotiation with, certainly, Britain and I support what you have 
been doing. Keep up the good work. 

Ambassador Kantor. Thank you, Mr. Chairman. I appreciate it. 

Chairman Gibbons. Mr. Matsui. 

Mr. Matsui. Thank you, Mr. Chairman, for holding this hear- 
ing,and how wonderful that it falls on a very timely day in particu- 
lar. 

Mr. Ambassador, I would like to thank you and congratulate you 
on the agreement reached today with the Europeans. I think the 
fact that you raised this issue, threatened that title VII sanctions 
would be taken, and then the fact that you reached at least a ten- 
tative agreement with the Europeans at this time is commendable 
and indicates the negotiating skills that you have. The President 
clearly showed good judgment when he selected you as our USTR. 

The tentative agreement you made deals with the heavy elec- 
trical equipment. But the issue of telecommunications is of course 
still outstanding. I recall back, I believe it was 1986, when the 
courts mandated the split up of the telephone industry in the seven 
operating companies, we virtually opened up our entire tele- 



17 

communications industry to whomever wanted to come in. Unfortu- 
nately, at that time then-Attorney General William French Smith, 
did not save U.S. market access for the purpose of negotiating to 
try to open up other markets. It was a mistake that obviously some 
6 or 7 years later we have come to really regret. We have not been 
successful, in your negotiations, in terms of the telecommunications 
issue. 

You have indicated that you will continue on at least proportion- 
ally with the title VII sanctions in that particular area. I would 
just wish you to know for whatever it is worth that many of us who 
are considered free traders are strongly behind your efforts, and we 
want to commend you and urge you, to continue your actions be- 
cause certainly there is no reason why our markets should be open 
to European, Japanese, and other telecommunications products 
while at the same time the European market is closed and some 
of the other markets are closed as well. We want you to know that 
we are fully behind your efforts in this area. 

I would just like to ask, if I may, one question with respect to 
this. Will these discussions that you are having, in your opinion, 
have any bearing on the negotiations going on regarding the Uru- 
guay round? 

Ambassador Kantor. Thank you, first of all, Congressman Mat- 
sui, for those kind words. This is only, as they say, the first inning, 
I have a long way to go, but I appreciate that. 

Let me note the telecommunications market in this country is 
wide open. There is no discrimination whatsoever. In fact, 54 per- 
cent of our central switch market, the most expensive goods pur- 
chased by telecommunications companies, is held by foreign compa- 
nies. We have a tiny percentage in Europe by comparison and that 
is why the sanctions are going to be invoked in this area with the 
hope that we can persuade the Europeans to open that market. It 
is an important market and we need to do that. 

Let me address your question on the Uruguay round. I think that 
in light of that, the fact that we could open the heavy electrical 
equipment market which historically has been closed is encourag- 
ing. We haven't sold a steam turbine since the Marshall Plan in 
Europe, or a gas turbine in 10 or 11 years now; 10 years, 1983. 

I believe our ability is to reach this agreement and to move onto 
category A procurement bodes well for our ability to achieve a mar- 
ket access package in order to grow our economy and the global 
economy. We also seek to reach some agreement on intellectual 
property protection, service protection, audio visual and to resolve 
other problems with the Dunkel text by December 15. 

I am encouraged by what happened today. 

Mr. Matsui. Thank you very much, Mr. Ambassador. 

Chairman Gibbons. Mr. Crane. 

Mr. Crane. Thank you, Mr. Chairman. 

I am encouraged by your response on the issue of Chile and a 
free trade agreement with them. I am curious after we get the Uru- 
guay round and the North American Free Trade Agreement behind 
us and your dish is full already, but looking to fiscal year 1994, are 
you giving any thought to exploring the possibility of free trade 
agreements with, say, Korea, Taiwan, any of the Pacific Rim coun- 



18 

tries? And if so, do you have the budgetary resources necessary to 
contemplate that in fiscal year 1994? 

Ambassador Kantor. Without getting too far out in front of the 
President for whom I work, let me indicate that the Pacific basin — 
the Asia Pacific area — is critical to us. We would like to use vour 
chairmanship of APEC to begin to address trade issues. We hope 
that will lead to more open trade with all the nations of the Asian 
Pacific region. 

We will also have bilateral discussions whether it be with Japan, 
China, Korea, Taiwan, Singapore, or others to continue to open 
those markets. We will commit the requisite amount of resources 
to make that happen. 

I might note, this office, even with the small staff, has been able 
to work on both the NAFTA and the Uruguay round. I believe we 
do have the resources to make that happen. 

Mr. Crane. Do you have any estimated costs of the commissions 
for these side bar agreements? What is your estimate of the costs 
of that? 

Ambassador Kantor. The current negotiations indicate it will be 
fairly small. We can handle those costs within the proposed budget. 
Of course, we will expect the other two countries to share any 
costs. 

Mr. Crane. And finally, is there a possibility that there may be 
imposition of a small border fee to pay for the cost of NAFTA im- 
plementation? Is that under serious consideration? 

Ambassador Kantor. We have not yet discussed border cleanup. 
When we do, of course, the funding of that becomes an important 
issue. Frankly, we are looking for some creative ways to handle 
this problem. This must be dealt with without having a maior 
budgetary impact or inhibiting trade or putting an unusual buraen 
on business. 

As you know, we have taken this country from a multibillion dol- 
lar deficit with Mexico in trade to a $4 billion surplus. This is fa- 
vorable to American workers. We would rather not put any burden 
on trade because the opening of these borders has been so helpful 
to us. 

Mr. Crane. I would hope that you would adhere to that position 
because of the potential for a German firm or Japanese firm open- 
ing up a facility in Mexico and then importing parts into the coun- 
try and putting American exporters into Mexico at a disadvantage. 
So I am happy to hear your response to that. Thank you for your 
testimony. 

Ambassador Kantor. Thank you. I appreciate it. 

Mr. Gibbons. Mrs. Kennelly. i 

Mrs. Kennelly. Thank you, Mr. Chairman. 

And thank you, Mr. Kantor for coming. We have been very fortu- 
nate in this country in having remarkably bright USTRs in modern 
history, and yet some of us on this committee have been dis- 
appointed that we have not used the availability of some of our 
tools to be a bit more aggressive. One of the areas that I am refer- 
ring to is the Special 301 provision. 

And I know as recently as today that you have announced that 
you are going to be more attentive to this provision. First, what is 
your vision of the new 301, using it as I always thought it should 



19 

be used and could be used, but hasn't been used? And the other 
question is how does enforcement of intellectual property and pat- 
ents play a role? This is an area where we perform significant re- 
search and development. We have the intellectual property and we 
should be able to export it but if we can't protect it, we are going 
to be left, as in many other areas, being out competed. So I would 
ask you how you intend to use the 301 provision more effectively? 

Ambassador Kantor. First of all, thank you, Congresswoman 
Kennelly, for that question. No one ever accused me of not being 
aggressive. I have been accused of a lot of things but that is not 
one. 

We are now reviewing Special 301. We are serious about enforc- 
ing Special 301. I believe you will be interested in our announce- 
ment on 30 April, 

Mrs. KEr^WELLY. Do I understand this is a list that will be 

Ambassador Kantor. It will be a list. Let me just say that we 
are not going to be shy about making sure that countries adhere 
to their responsibilities for intellectual property protection. The 
huge cost to this country in intellectual property violations is a 
maior concern of this administration. I have raised this concern 
witn Ambassadors, Trade Ministers, and prime ministers when 
they have been here in Washington. We have made it clear to them 
that we are not going to stand by and have intellectual property 
in any way offended or taken away. 

As you know, intellectual property protection is essential for the 
cutting edge technologies that will be the fuel, I hope, for the 
growth of tnis economy and the growth of many more jobs for U.S. 
workers. 

And so we are dead serious about enforcing Special 301, and I 
hope you will be satisfied with what we announce on the 30th of 
April. 

Mrs. KEN^fELLY. Thank you very much. Thank you, Mr. Chair- 
man. 

Chairman Gibbons. Mr. Thomas. 

Mr. Thomas. Thank you, Mr. Chairman. 

Mr. Ambassador, welcome. Once again, I want to underscore all 
of the comments that the chairman made. This particular season 
when partisanship unfortunately seems to be the mode on a num- 
ber of issues, in the area of trade we have had an unusual degree 
of bipartisan support for whichever administration, and to a very 
great extent I believe it is because of the reason that my colleague 
from Connecticut indicated; that whoever has occupied this posi- 
tion, they have been extremely talented people with very dedicated 
and talented staffs. 

Having said that, I am somewhat concerned about folks already 
working on weekends, given the number of staff that you have in 
regard to the chairman's comments. If every department and agen- 
cy asked for only a 1.26 percent increase and they had the produc- 
tivity of USTR we would not be in some of the problems that we 
are today from the deficit. 

But my concern is this: When you look at our aggressive trade 
policy on a worldwide basis and view it as a military campaign in 
terms of a European front, an Asian fi-ont, a Western Hemisphere 
front, both North and South, the troops that you have get stretched 



20 

very thin, especially when you look at a calendar and there are in- 
evitably skirmishes going on at the same time in several different 
theaters. I think in the past there has been an attempt to augment 
the staff through detailees or contract people in particular areas. 

Has there been any consideration or have you discussed that con- 
cept? If you aren't going to be able to beef up your full-time staff 
necessarily, do you have some contingency plans or have you talked 
at all about making sure that there are enough bodies when there 
are multiple fronts that have been opened on the trade negotiation 
front? 

Ambassador Kantor. First of all — I appreciate your kind re- 
marks. I will hope to live up to the high standards tnat my prede- 
cessors have set. You are right and they have acted in a non- 
partisan manner and I hope to carry on that tradition. I have tried 
to do it thus far and I will continue to try to do that. 

I will note that we have on board right now 50 detailees. It will 
be cut to 42, but that is not really descriptive of the entire story, 
Mr. Thomas. We have had tremendous cooperation from the De- 
partments of Commerce, Treasury, and State, as weak as the 
Council of Economic Advisers on various discrete issues within 
their area of expertise. I am pleased by the kind of cooperation that 
has been afforded this office. This has helped tremendously. 

I don't think we need more than we have asked for. If I find that 
it is impossible to carry out these tasks in this situation under this 
budget, then I would go to the President and ask for more. We do 
need to deal with the structural budget deficit — and I understand 
we're not going to end the deficit on the back of the United States 
Trade Representative's office. It is symbolically important and we 
are part of this commitment. 

Mr. Thomas. I would urge you as you continue to use detailees 
or contract people if you notice a continuing dipping into the same 
well, that would indicate that you need to add someone in that 
area. And I think you would find unanimity on this committee to 
augment the staff rather than to continue to borrow from Com- 
merce or other areas. 

In review of the subject matter, in terms of GSP, there are some 
of us who have been watching that over the years and have made 
suggestions which were adopted into the statute over the years, 
and if you are going to ask for a 1-year extension with no statutory 
changes, we may want to visit with you in terms of some of the dis- 
cretionary power that the administration has and the way it has 
been exercised in the past and perhaps we could get substantive 
changes in the administrative application rather than statutory 
changes. 

In regard to the discussion of bilaterals, I think there is a role 
for bilaterals. I would prefer it to be seen on a multilateral basis 
in terms of a world trade structure, but if you are talking about 
additional nations in the Western Hemisphere like Chile, it be- 
comes doubly important that we get NAFTA right because it will 
be a model for using in other areas. 

And last, let me say that there is already a watch begun in terms 
of our relationships with Mexico because it appears as though there 
may be some nontariff barriers that are appearing even before 
NAFTA is put in place so that the agreed upon tariff reductions in 



21 

the North American Free Trade Agreement may, in essence, be 
meaningless if Mexico is beginning to institute non tariff barriers. 

I submitted a series of questions to you on March 11. We re- 
ceived a copy of them on April 21. A number of them are single 
paragraphs which, in essence, Mr. Ambassador, I could have writ- 
ten myself. I don't ask questions that I already know the answer 
to for the sake of asking questions, nor do I want to occupy your 
staffs time in terms of giving me one paragraph answers that have 
no content. So we are going to have to work out a timeframe in 
some sort of a prioritizing. I only ask questions because I need an 
answer. And I would rather have vou tell me that you are not 
going to tell me because you don't know or don't want to tell me 
rather than having someone sit down and link a group of words to- 
gether that don't really mean or say anything. But thank you for 
your continuing 

Ambassador Kantor. Congressman, I will take a look at those 
questions and I will sit down and write the answers myself. 

Mr. Thomas. If you don't understand it, there was a reason for 
asking it. And if we were inarticulate in asking it, perhaps a 
reasking of the question would be helpful. I am not in the practice 
of asking questions that I don't need the answer to. 

Ambassador Kantor. Congressman, I have known you for a long 
time and you are not inarticulate. 

Mr. Thomas. I appreciate that. The job you are doing is as im- 
portant as anyone else in this or any other administration, laying 
the ground work for not just us but future Americans. So I really 
do appreciate the work that you are doing. 

Chairman GiBBONS. Mr. Coyne. 

Mr. Coyne. Thank you, Mr. Chairman. 

Mr. Ambassador, I wonder if you would give me your assessment 
of what a successful completion of the Uruguay round would mean 
to the manufacturing sector of the U.S. economy. 

Ambassador Kantor. Mr. Coyne, in general we will have a net 
increase of employment even above the kinds of increases we have 
already had as a result of the incredible increase in exports into 
Mexico. As you know, they have increased from $12 to $40 billion; 
by three and a half times. 

Much of that increase in employment — and it has been estimated 
from 125,000 to a 500,000 increase — will be in the manufacturing 
sector. This is the most studied treaty with 24 different studies in 
the history of this country. Every study except one indicates more 
than nommal growth in the manufacturing sector. 

NAFTA will also add to our gross domestic product and to in- 
come growth in the country. This is in addition to the current 
growth because the Mexican Government has opened up its bor- 
ders. As I mentioned before the United States now has a trade sur- 
plus rather than a trade deficit with Mexico. 

Mr. Coyne. So as a result of the Uruguay round, you expect a 
dramatic increase in manufacturing employment with the success- 
ful completion of it? 

Ambassador Kantor. NAFTA and the Uruguay round. The Uru- 
guay round will have a more dramatic increase in employment in 
the manufacturing sector, especially if we attain our goals with re- 
spect to nonferrous metal, paper, wood, electronics, construction 



22 

equipment, agricultural equipment and others. We have a long list 
we have been discussing over the last 48 hours with the European 
Community. If we can reach agreement on a bilateral basis and 
there multilateralize the agreement, it will have a huge impact on 
the manufacturing sector. 

Mr. Coyne. Do you intend to pursue a sectoral agreement in 
steel at the same time that you are negotiating the Uruguay 
round? 

Ambassador Kantor. We are attempting to deal with the prob- 
lem of overcapacity in the steel industry through the multilateral 
process, not through the round itself. The round will, however, 
touch upon some concerns in the steel area like subsidies. 

Let me give you an example: The European Community has $75 
billion in steel subsidies. This makes it difficult for the U.S. indus- 
try and has led to the countervailing duty and dumping cases and 
the preliminary decision of which you are well aware. We will con- 
tinue to try to reach an agreement on steel through that process. 
We will not do anything with the regard to the normal progression 
of the cases that are going through the process and will be finalized 
this summer at the Department of Commerce. 

Mr. Coyne. As you know, when President Yeltsin was in the 
country a couple of weeks ago, he and the President discussed most 
favored nation status for Russia. What is the status of those delib- 
erations? 

Ambassador Kantor. They are under discussion in the adminis- 
tration. As you know, there are some particular problems that are 
being discussed with the President, the National Security Council, 
and the State Department regarding continuing problems of inte- 
gration with Russia, the Confederation of States and the former So- 
viet Union. Those discussions are ongoing. 

Mr. Coyne. Thank you very much. 

Chairman Gibbons. Mr. Payne. 

Mr, Payne. Thank you, Mr. Chairman. 

Mr. Ambassador, I would like to echo the words of my colleagues 
as I express my appreciation for the good job that you and your 
staff are already doing, in particularly the success you have just 
had in the negotiations with the European Community. Thank you 
for that and I look forward to working with you and hopefully we 
will have many more successes. 

I would like to spend a minute and talk about the fast track ex- 
tension and an issue that is of real importance to my people back 
home. I voted against the fast track extension in 1991, and at that 
time I was concerned about the impact of phasing out the 
multifiber arrangement and the across-the-board tariff reductions 
and the impact that they might have had on the communities and 
families that rely on the textile industry. 

In my district, I have 20,000 workers in the textile industry 
alone and others in apparel and fiber. With the emphasis of this 
administration on jobs and on the economy, I would hope that we 
might also take another look, and a serious look, at the proposed 
agreement on textiles and how we might improve it. For instance, 
we have talked about the fact that the United States must take a 
strong stand on opening markets. 



23 

Here are some examples of where we might look at opening mar- 
kets: India exports into the United States roughly $1 billion in tex- 
tiles and apparel goods. India imports from the United States zero 
in those areas; Pakistan, $586 million and imports zero. There are 
many other examples in China and Thailand, et cetera. It seems 
with these kinds of figures around the world, that any phaseout of 
MFA or tariff concessions should be done only with some kind of 
linkage to a guarantee that countries worldwide would open their 
markets and trade would take place on some kind of equitable con- 
ditions of competition. 

It seems the U.S. goal in the GATT agreement ought to be not 
only free trade, but fair and equitable with reciprocity. My question 
is: Could you provide any kind of update as to what the President's 
thoughts or your thoughts are on the GATT and the fast track ex- 
tension as it relates to textiles? 

Ambassador Kantor. In the last 48 hours that has been an issue 
that has been discussed. There was a proposal tabled by the past 
administration in the textile and apparel area which we did not 
find adequate to open markets. 

You indicate that China exports to the United States about $2 
billion of textiles. We are not satisfied with the markets' access in 
China. We believe that is one area that we must insist be opened 
on a multilateral basis in the Uruguay round if we are going to ad- 
dress other issues that the European Community and others want 
us to address. 

Mr, PAY^fE. So in terms of the textile negotiations, there is con- 
sideration being given to the current status of those negotiations 
and how they might be structured under the GATT? 

Ambassador Kantor. As of Monday afternoon. Congressman, we 
opened that up. 

Mr. Payne. Thank you very much. 

Ambassador Kantor. We raised that issue with them precisely; 
12 different sectors, apparels and textiles being one, and we might 
take one off of the table and reconstitute it. 

Mr. Payne. And I would like to offer any assistance that I might 
offer as you consider the positions and so forth in the textile area. 

Ambassador Kantor. Congressman, given the reaction I think I 
am going to need all the help that I can get. 

[The following was subsequently received:] 



24 



THE UNITED STATES TRADE REPRESENTATIVE 

Executive Office of the President 

Washington. DC. 20506 

April 29, 1993 



The Honorable L.F. Payne 
U.S. House of Representatives 
Washington, D.C. 20515 

Dear Congressman Payne: 

The purpose of this letter is to respond to the concerns you 
have raised with me regarding the Uruguay Round and its impact on 
the textile and apparel industry. In specific, I want to respond 
to your concern about the combined effect of the ten-year phase- 
out of the Multifiber Arrangement (MFA) called for in the Dunkel 
draft and the tariff proposals that were explored with the 
European Community by the Bush Administration in January of this 
year. 

I have been discussing a number of issues with the European 
Community in light of this Administration's desire to obtain 
significant market access for a number of American manufacturing 
and natural resource sectors. During the course of those 
discussions, the European Community has reiterated its request 
for significant cuts in tariffs on textiles and apparel. 
As I stated when I appeared before the Ways and Means Committee 
last week, the MFA phaseout provisions are an area that must be 
revisited if we are to address the European Community's tariff 
request. In particular, we will need to assure an adequate 
adjustment period for the MFA phaseout and I will work with you 
in resolving that issue. 

In response to the EC's requests, I have expressed this 
Administration's strong support for the textile and apparel 
workers in this country. I have specifically stated that we will 
be seeking strong market access provisions for textiles and 
apparel that will materially help our industries gain sales 
overseas, thereby helping to keep textile and apparel jobs here 
at home. As you know, the United States has made its willingness 
to accept the Dunkel draft on textiles and apparel contingent 
upon receiving satisfactory market access for our textile and 
apparel exports. You can rest assured that I will insist on 
adequate market access -for our textile and apparel industries. 

In addition, I have also insisted that the EC join us in 
seeking strong commitments to address the growing problem of the 
circumvention of our quota system through transshipped goods. As 
you know, the U.S. Customs Service has estimated that over $2 
billion worth of textiles and apparel were illegally sent to the 



25 



United States from China alone and we know that goods are being 
transshipped from a number of other countries as well. I will 
insist that we obtain the strongest possible language to combat 
circumvention in both the Uruguay Round text and in any protocols 
to extend the Multifiber Arrangement and that we receive the 
maximum amount of cooperation from our trading partners to 
address this threat to our trading system. 

With respect to tariff cuts, you can rest assured that I am 
well aware of the very sensitive nature of tariff cuts in 
textiles and apparel and I pledge to you my willingness to 
discuss this issue with you on a regular basis throughout the 
negotiations to complete a Uruguay Round. I will consult with 
you and will take into account your concerns before making any 
decisions regarding tariff cuts or the staging of any such cuts. 

This Administration is committed to the completion of a 
Uruguay Round agreement that opens doors for American products 
and services abroad. Such an agreement will promote economic 
growth and the creation of jobs in this country. In order to 
complete such an agreement by the December 15, 1993 deadline 
outlined in the fast-track legislation now pending before the 
Ways and Means Committee, we need swift passage of that 
legislation without any amendments which could impede the 
progress of our negotiations. I hope that you can support this 
Administration in that endeavor. Let me reiterate that I 
understand your concerns regarding the textile and apparel 
portions of the agreement and will do my best to address them and 
to consult with you throughout this process. 




26 

Chairman GiBBONS. Mr. Neal. 

Mr. Neal. Thank you, Mr. Chairman. In fairness, I have been in- 
formed by my staff that the questions that I had have already been 
asked. 

Chairman Gibbons. Thank you. Mr. Hoagland. 

Mr. Hoagland. Mr. Ambassador, I am curious as to whether the 
administration has developed any policy yet on the fee issue. You 
know we are going to start with a substantial loss of revenue due 
to loss of tariffs it NAFTA is confirmed. What is that figure on an 
annual basis once NAFTA is fully implemented? How much would 
we lose in tariffs in a year? 

Ambassador Kantor. I think over 5 years, it is $2 billion. 

I think it is over 5 years, if I am not mistaken, and if I am wrong 
I will supply it. I think it is a little over $2 billion over 5 years. 
I think that is correct. 

Mr, Hoagland. I heard some higher figures. 

Ambassador Kantor. I will bring that for the record. I apologize 
for not having it at my fingertips. I think that is correct. If not, 
we will correct it. 

Mr. Hoagland. That is fine. The figure is not that important. 

[The information follows:] 

A preliminary 0MB estimate of the revenue impact of the NAFTA for the first 
5 years of implementation is shown below. 

ESTIMATED TARIFF REVENUE IMPACT OF NAFTA 
[In millions of dollars] 



Year 


Tariti revenues 
foregone 


1994 


211 


1995 


476 


1996 


521 


1997 


562 


1998 


607 




Total 1993-98 








2,377 




Total 1995-2003 ... 




5,918 



The NAFTA is also expected to result in an increase in U.S. exports, employment and wages. This 
economic growth could lead to increases in Federal, State, and local tax revenues. 

Mr. Hoagland. My concern is if there is any authority exercised 
under an extension. Furthermore, there is going to be an enormous 
number of demands from States and political subdivisions to build 
new highways, and to improve existing highways. 

Majority Leader Gephardt was here about 3 weeks ago, and I am 
sure you have seen his testimony about a cleanup that is going to 
be needed on both sides of the border. 

Estimates as to the total price tag to have the thing work right, 
with the increased traffic across the border, we are going to have 
to increase the highways and the quality of those highways, and 
we could fund it from the general revenues or we could ask those 
who profit from the increased trade to help import, which would be 
assessing some sort of small fee at the border. 



27 

And I am wondering, you know, I think those of us from States 
that contribute a lot to tne general revenues and don't get a whole 
lot in return would probably prefer to see a fee assessed from those 
who profit from it. I wonder what the administration's attitude to- 
ward that is, and I wonder what the attitude of the Canadians and 
Mexicans is in attaching a fee to an exercise that is supposed to 
be carefree. 

Ambassador Kantor. Mr. Thomas addressed the same thing in 
also some detail. We have not reached those discussions yet. 

There is a potentially very large obligation in terms of border 
cleanup that we will have to share with the Mexican Grovernment, 
especially that border. We are going to have to be very creative in 
how we lund that. 

What we don't want to do — and of course I know you would 
agree — is in any way inhibit the growth of our export trade into 
Mexico by the imposition of a fee that would have a deleterious ef- 
fect upon it. On the other hand, we have to be realistic about our 
budget concerns in trying to fund border cleanup and fund infra- 
structure development. 

One of the problems we have, and this is beyond my competence, 
but let me indicate that with the static budget analysis ana resolu- 
tion process of 1990, no matter how many jobs are created by any 
one these agreements, whether it is the Uruguay round or NAFTA, 
that doesn't count, and every time we lose tariffs we have to find 
something to make up for it. 

So we have to work together, I believe, and we are looking for 
ideas how to do that. I know Mr. Panetta, your former colleague, 
who is doing such a wonderful job as Budget Director, is trying to 
fulfill these needs without busting the budget and without inhibit- 
ing our exports. 

Mr. HOAGLAND. My understanding is that the State of Texas has 
already developed a prettv substantial wish list as to additional 
highways that it would like to see built and it would like to see 
repaired. 

As you develop your policy, just keep in mind those of us in 
States far from the border are not going to profit as directly from 
the transactions as those that are nearby. 

Ambassador Kantor. What is interesting — and I agree, we have 
to. But right now every State in the Union, every State has in- 
creased its exports to Mexico, and 30 States have $30 million or 
more in exports already into Mexico. It has been an amazing rise 
in exports and growth in that area. That has meant jobs in every 
State. 

I recognize it is greater in some States than others. Your States 
may be less than many. But there has been growth in every State. 

Mr. HoAGLAND. It is pretty clear that in Nebraska we will profit 
considerably from the increased trade in financial services and in- 
surance, in agricultural products, in manufactured products. We 
will do quite well. It is just that I don't know if any of that is going 
to trickle down to the average taxpayer. 

Those who profit the most I think ought to share at least in part 
of those lost revenues. 

Ambassador Kantor. Thank you. Congressman. I appreciate that 
very much. 



28 

Chairman Gibbons. Thank you very much, Mr. Kan tor. We ap- 
preciate it. We got you out on time. I won't bother you on the week- 
ends. 

Ambassador Kantor. You can call me any time, Mr. Chairman. 

Chairman Gibbons. OK Thank you. 

[Questions submitted by Mr. Crane to Ambassador Kantor and 
the Ambassador's responses follow:] 



29 



SAM M GIBBONS. FIORIOA. CMArRMAN DAN ROSTENK0W5KI. ILLINOIS, CHAIRMAN 



COMMITTEE ON WAYS AND MEANS 

« -oiouuTo «Vh««" us house of representatives 

WASHINGTON, DC 20615 
SUBCOMMITTEE ON TRADE 

April 21, 1993 



Ambassador Mickey Kantor 
U.S. Trade Representative 
Executive Office of the President 
600 17th Street, N.W. 
Washington, D.C. 20506 

Dear Ambassador Kantor: 



I appreciate very much your appearance before the Trade 
Subcommittee to answer questions on USTR's budget submission 
for FY 1994 and related policy matters. Since there is never 
enough time to answer all Members' inquiries in the short time 
available, I would appreciate it if you could respond to the 
following questions for the record. Your responses will be 
circulated to Committee Republicans so that we can be adequately 
informed on the details of your agency's budget and your policy 
priorities. 

1. President Clinton has pledged in his budget request to 
reduce administrative costs and full-time equivalent (FTE) 
positions. In detail, how is this reflected in USTR's 
budget. Which administrative costs are not covered in the 
3% reduction? What inflation factor is built into the 
baseline for administrative costs? To which administrative 
costs does the inflation factor apply? What percentage 
reduction in FTEs must USTR absorb? 

2. Why was USTR not considered part of the White House staff 
for purposes of calculating President Clinton's pledge to 
reduce White House staff by 25%? If USTR were included in 
that calculation, what percentage has the White House staff 
been cut as of today? 

3. Does USTR plan to hire any consultants or experts under 
5 U.S.C. 3109 in FY 1994? Are there any consultants or 
experts currently under contract at USTR? What is the 
nature of any outside contracts USTR has let? 

4. What was the average salary at USTR in FY 1993 and what is 
the average salary currently? What is the projected 
average salary for FY 1994? Including the pending 
supplemental request, what is the total amount spent on 
salaries and benefits in FY 1993 and estimated in FY 1994? 



68-144 0-93-2 



30 



Does the FY 1994 estimate include any continuing personnel 
costs associated with the pending supplemental? 

Will there be any across-the-board pay increases in FY 
1994? What amounts are budgeted for within grade and merit 
pay increases? What is a projected FTE "lapse"? 

Do you plan to begin negotiations of any new free trade 
areas, such as with Chile or Taiwan, in FY 1994? Should 
FTA negotiations with Chile or other nations begin during 
FY 1994, is it expected that current resources at USTR will 
be sufficient to launch such talks? 

The Ways and Means Committee is currently considering 
H.R. 1248, the "Trade Agreements Compliance Act." If this 
legislation is enacted, would you expect to need additional 
resources to handle the mandatory investigations of 
compliance proscribed in this bill? 

In your budget, you have outlined renewal of "super 301" as 
an important initiative. What proportion of the 
budget is currently associated with 301 investigations? 
What additional amounts are budgeted in FY 1994 for 
expected "super 301" identifications and actions? 

Please explain in detail the ethics rules that USTR will 
apply to its employees in order to, as you state in your 
budget submission, "restrict USTR employees from using 
their current position to become lobbyists for foreign 
governments or corporations". Will these rules apply to 
all USTR employees? Will any political personnel not be 
covered by these rules? 

Please list all employees hired or promoted since 
January 20 and their positions. 

Does the FY 1994 budget include expected expenses for 
panelists under the NAFTA? What is the estimated cost for 
the U.S. for dispute-settlement procedures under the NAFTA? 
What is the estimated cost for the commissions on labor and 
the environment as outlined in the U.S. negotiating 
position presented during the side-deal negotiations? 



31 



12. How many current positions are located in Geneva? Will 
that number be reduced or increased in FY 1994? What is 
the status of the appointment of a Deputy USTR for Geneva? 

13. You asked the International Trade Commission (ITC) to 
suspend the study on the economic impact of action taken 
under dumping and CVD statutes requested by USTR prior to 
January 20th of this year. I very much support proceeding 
with this study and have suggested that it be concluded by 
the end of this year so that we will have the benefit of 
the information when drafting the implementing bill for the 
Uruguay Round. Why have you suspended the Hills study? Do 
you intend to proceed with it in a timely fashion so that 
its results will be useful to us? Will you make your 
decision on this study before the House votes on NAFTA? 

14. Is the possibility of imposing a small border fee to pay 
for the costs of NAFTA implementation being seriously 
considered? If such a border tax is applied, will that not 
have the effect of penalizing NAFTA partners and placing 
them at a disadvantage vis-a-vis imports from non-NAFTA 
countries? 

15. If a small border fee is imposed to be earmarked for 
clean-up along the border or other projects to enhance the 
environment, won't that mean that the revenue raised, in 
effect, will go for new spending and not to cover the costs 
of basic NAFTA implementation? Why shouldn't such new 
projects be funded through general revenues like other 
worthwhile projects? 

16. I also want to make note of your pending supplemental 
request. It has been justified by USTR as necessary to 
complete the NAFTA and Uruguay Round. It calls for 
spending $275,000 to hire new people. I cannot imagine 
efforts to conclude these agreements being more intense 
than it has been in the last two fiscal years. I question 
whether the substantial increase in political hires in your 
agency have left you short of cash to fill the ranks of 
NAFTA and Uruguay Round specialists. Please comment on how 
the increase in the average salary at USTR has affected 
your ability to fill key positions left vacant under the 
hiring freeze? 



32 



When do you expect to announce an Administration position 
on renewal of GSP? If GSP is allowed to expire, doesn't 
that threaten the NAFTA since Mexico uses GSP extensively 
and will find tariffs going up significantly just prior to 
NAFTA implementation? 



Thank you again for your willingness to respond to our 
questions about the FY 1994 budget and the important policy issues 
that you must address in the next fiscal year. Mark-up of budget 
authorization will be on April 29, and I hope we could have your 
responses to these questions by April 27. We look forward to 
working with you and your highly respected staff during the critical 
year ahead. 




Philip Crane 

Ranking Republican Member 



33 



QUESTION l: 

President Clinton has pledged in his budget request to reduce 
administrative costs and full-time equivalent (FTE) positions. 
In detail, how is this reflected in USTR's budget? Which 
administrative costs are not covered in the 3% reduction? What 
inflation factor is built into the baseline for administrative 
costs? To which administrative costs does the inflation factor 
apply? What percentage reduction in FTEs must USTR absorb? 

ANSWER: 

USTR's FY 1994 budget fully carries out President Clinton's 
pledge to reduce FTEs and administrative costs. This is done in 
two ways: 

a. The President has pledged to reduce by FY 1996 Full Time 
Equivalent (FTE) staff by 4 percent. This commitment 
translates to reducing 6 FTEs in USTR by FY 1996. USTR's 
budget recjuest for FY 1994 reduces FTEs by 5 (from 162 to 
157 FTEs) of the target of 6 FTEs. The remaining FTE cut 
(for a total of 6 FTEs) will be made in FY 1995. 

b. The President's plan calls for reducing non-personnel 
administrative expenses by increasingly cumulative cunounts 
of 3 percent in FY 1994, 6 percent in FY 1995, 9 percent in 
FY 1996, and 14 percent in FY 1997. These reduction targets 
apply to cost categories other than personnel compensation 
and benefits. USTR's FY 1994 budget proposes $237,000 in 
funding cuts for travel, transportation, rent, 
communications and utilities. The $237,000 net reduction 
fully meets the 3 percent target for FY 1994. 

All cost categories, except personnel compensation and benefits, 
were considered in the reduction. The aggregate rate of 
inflation assumed for these expenses is 2.8 percent. USTR must 
absorb an FTE reduction equivalent to 4 percent in FY 1995: 
USTR's FY 1994 budget absorbs more than 3 percent of the 
4 percent targeted cut, with the remainder absorbed In FY 1995. 



QUESTION 2: 

Why was USTR not considered part of the White House staff for 
purpose of calculating President Clinton's pledge to reduce White 
House staff by 25%? If USTR were Included in that calculation, 
what percentage has the White House staff been cut as of today? 



USTR was not included in the 25 percent White House staff 
reduction because of the extraordinarily heavy workload demands 
placed on the agency in FY 1993 and FY 1994. A 25 percent 
reduction in USTR staffing would reduce the FTE level from 162 to 
122 FTEs, a decrease of 40 FTEs. USTR does not maintain any 
employment records for any other agencies in the White House 
complex, and is not able to respond to what percent of the White 
House staffing cut has been achieved as of today. 



34 



QUESTION 3: 

Does USTR plan to hire any consultants or experts under 5 U.S.C. 
3109 in FY 1994? Are there any consultants or experts currently 
under contract at USTR? What is the nature of any outside 
contacts USTR has let? 



ANSWER: 

USTR plans only one possible consultant appointment for FY 1994: 
a speechwriter used on an intermittent basis. 

With respect to consultants currently under contract, USTR does 
have 3 such consultants. The nature of these consultancies is 
to: (1) provide expert counsel to the USTR while awaiting Senate 
confirmation of a Presidential appointment; and (2) provide 
ongoing but intermittent expert service in the area of 
speechwriting, and to provide advisory services on current laws, 
policies and practices affecting international trade. 



QUESTION 4: 

What was the average salary at USTR in FY 1992 and what is the 
average salary currently? What is the projected average salary 
for FY 1994? Including the pending supplemental request, what is 
the total amount spent on salaries and benefits in FY 1993 and 
estimated in FY 1994? Does the FY 1994 estimate include any 
continuing personnel costs associated with the pending 
supplemental? 

ANSWER: 

The average salary in FY 1992 was $63,551. The projected average 
salary is estimated at $67,000 in FY 1993 and $69,000 in FY 1994. 
These averages exclude overtime, terminal leave, students and 
benefit costs. 

Including reimbursements, USTR expects to spend $13,373,000 in FY 
1993 for all salaries and benefits. The proposed supplemental 
would add $285,000 to this level in FY 1993 for a grand total of 
$13,658,000. The FY 1994 total is projected at $13,340,000. 
The FY 1994 level includes funds to cover costs associated with 
FTE level of 157. Some of the individuals who would be hired 
once a supplemental was approved would still be on-board in FY 
1994. Their costs would be subsumed within the authorized FTE 
level . 



QUESTION 5: 

Will there be any across-the-board pay increases in FY 1994? 
What amount are budgeted for within grade and merit pay 
increases? What is the projected FTE lapse? 

ANSWER: 

USTR's FY 1994 request does not include any funds for an across 
the board increase. The budget assumes that there will not be 
any general pay raise next fiscal year. For FY 1994 we estimate 
within grade increases at $56,000 and $16,000 for merit pay 
increases. The projected lapse is 4 FTE. 



35 



QUESTION 6: 

Do you plan to begin negotiations of any new free trade areas, 
such as with Chile or Taiwan, in .Y 1994? Should FTA 
negotiations with Chile or other nations begin during FY 1994, is 
it expected that current resources at USTR will be sufficient to 
launch such talks? 

ANSWER : 

Although we are committed to pursuing discussions with Chile 
about a free trade agreement, the Administration has not yet 
determined its specific course of action. The Congressional 
review of the NAFTA and the ongoing Uruguay Round and 
Congressional considerations of these negotiations will have 
implications for Chile. We are not expecting to proceed with 
free trade agreement negotiations with Chile prior to a 
conclusion of the Congressional debate and review of the NAFTA. 
The Administration will consult extensively with Congress, and in 
particular the House Ways and Means and Senate Finance 
Committees. 

Concerning USTR resources, we believe we will have sufficient 
resources to handle free trade agreement negotiations with Chile. 
In addition to our existing staff, traditionally USTR utilizes 
its role as the coordinator of Administration trade policy and 
negotiations to work cooperatively with other trade agencies, 
particularly Commerce and Agriculture. We would envision 
undertaking a similar approach with Chile. 

The Administration has no current plans to negotiate a free trade 
agreement with Taiwan in FY 1994. 



QUESTION 7: 

The Ways and Means Committee is currently considering H.R. 1248, 
the "Trade Agreements Compliance Act". If this legislation is 
enacted, would you expect to need additional resources to handle 
the mandatory investigations of compliance proscribed in this 
bill? 

ANSWER: 

Ambassador Kantor has noted that insuring that our trading 
partners adhere to the agreements that they make with the United 
States is a very high priority for USTR. Consequently, USTR is 
already reviewing our trade agreements to insure compliance, 
usually in response to issues brought to our attention by the 
private sector, but often on own initiative. For this reason, 
USTR believes that we can meet the requirements of the Trade 
Amendments Compliance Act without additional resources, if that 
legislation becomes law. 



36 



QUESTION 8: 

In your budget, you have outlined renewal of "super 301" as an 
important initiative. What proportion of the budget is currently 
associated with 301 investigations? What additional amounts are 
budgeted in FY 1994 for expected "super 301" identifications and 
actions? 

ANSWER: 

No separate sum is included in the budget for the section 301 
program, so it is not possible to specify a proportion of the 
budget associated with 301 investigations. However, estimates 
for staffing, travel, and printing costs include the resources 
needed to conduct section 301 investigations, to monitor 
implementation of trade agreements or other undertakings by 
foreign countries obtained in the course of section 301 
investigations, to monitor implementation of trade agreements or 
other undertakings by foreign countries obtained in the course of 
section 301 investigations, and to prepare and transmit to 
Congress semiannual reports on all investigations and monitoring. 
The section 301 program is administered by the Office of the 
General Counsel, and requires considerable time both of the 
Chairman of the interagency Section 301 Committee and a paralegal 
who serves as staff assistant to the Section 301 Committee. 
In addition to overall administration of the program, an attorney 
and at least one other member of the USTR staff is assigned to 
each 301 investigation. 

No specific amount has been budgeted for "super 301" 
identifications and actions in FY 1994 in the absence of a "super 
301" statute, but the FY 1994 budget estimate was prepared on the 
assumption that considerable staff hours would be spent on 
examining various foreign trade practices to determine whether 
section 301 is applicable or appropriate for addressing them. 



QUESTION 9: 

Please explain in detail the ethics rules that USTR will apply to 
its employees in order to, as you state in your budget 
submission, "restrict USTR employees from using their current 
position to become lobbyists for foreign governments or 
corporations". Will these rules apply to all USTR employees? 
Will any political personnel not be covered by these rules? 



President Clinton issued Executive Order 12834 on the day he came 
into office setting forth new ethics rules for senior political 
appointees and trade negotiators. Employees at USTR who fall 
within either category are required to abide by these rules. One 
of the rules prohibits a senior employee or a trade negotiator, 
for five years after termination of participation in a trade 
negotiation, from representing, aiding or advising any foreign 
government, foreign political party or foreign business entity 
with an intent to influence a decision of any officer or employee 
of any executive agency, in carrying out his or her official 
duties. This prohibition will, as I stated in my budget 
submission, "restrict USTR employees from using their current 
positions to become lobbyists for foreign government 
corporations . " 



37 



QUESTION 10: 

Please list all employees hired or pronoted since January 20 and 
their positions. 



ANSWER: 

From January 20 to April 23, 1993, there have been two 

promotions: 

1. a secretary from a GS-8 to a GS-9; and 

2. a computer specialist from a GS-7 to a GS-9. 

From January 20 to April 23, 1993, the following employees were 
hired (most of these are replacements for departing political 
appointments from the prior Administration) : 

MICHAEL KANTOR United States Trade Representative 

DEBORAH FRANKENBERG Confidential Assistant to the USTR 

ROBERT SEVERN Confidential Assistant to the USTR 

STEVE ENGELBERG Consultant 

DEMETRI BOUTRIS Special Assistant to the USTR 

TOM NIDES Spiecial Counsel for Congressional 

and Intergovememental Affairs 

CHARLENE BARSHEFSKY Consultant 

CAROL CHERNISH Confidential Assistant to the Deputy 

IRA SHAPIRO General Counsel 

h'ENRI WHITSEYJOHNSON Confidential Assistant to the GC 

HOWARD REED Special Counsel for Financial and 

Investment Policy 

JOHN SCHMIDT Uruguay Round Coordinator 

NANCY LEAMOND AUSTR for Congressional Affairs 

CARMEN LOWREY Deputy AUSTR/ Congressional Affairs 

ANNE LUZZATTO AUSTR for Public Affairs 

DIANE WILDMAN BURNS Deputy AUSTR for Public Affairs 

DOUGLASS OFFERMAN Public Affairs Assistant 

DEBBIE SHON Assistant USTR for Intergovernmental 

Affairs and Public Liaison 

DAVID MARCHICK Intergovernmental Affairs Liaison 

TOM HYNES Private Sector Liason 

ELLEN FROST Counselor to the USTR 

JENNIFER HILLMAN Chief Textiles Negotiator 

KATHRYN KRESGE Confidential Assistant to the AUSTR 

for Intergovernmental Affairs 

and Public Liaison 

ANN JENKINS Secretary 

KEVIN SULLIVAN Intermittent Consultant/Speechwriter 

MARK LINSCOTT International Economist 

JONATHAN JOHNSON Telecommunication Specialist 



38 



QUESTION 11: 

Does the FV 1994 budget include expected expenses for panelists 
under the NAFTA? What is the estimated cost for the U.S. for 
dispute-settlement procedures under the NAFTA? What is the 
estimated cost for the commissions on labor and the environment 
as outlined in the U.S. negotiating position presented during the 
side-deal negotiations? 



ANSWER: 

No funds are included in the FY 1994 budget request for NAFTA 
dispute resolution. The shape and cost of dispute resolution 
mechanisms would be one of the many issues we would examine in 
conjunction with the Congress on the agreement. With regard to 
commission costs that may arise out of NAFTA negotiations 
currently underway, we have not at this point set aside any 
specific amount of money to cover potential costs. We will 
attempt to meet any costs should they arise from the 
$20.1 million request level for FY 1994. Should this level not 
be adequate, I will inform 0MB Director Panetta of any additional 
requirements. 



QUESTION 12: 

How many current positions are located in Geneva? Will that 
number be reduced or increased in FY 1994? What is the status of 
the appointment of a Deputy USTR for Geneva? 

ANSWER: 

Currently, 8 positions are assigned to our Geneva Office. We are 
reviewing USTR's staffing structure. At this time. I do not 
anticipate any changes to the Geneva staff complement in the 
immediate future. With regard to the Deputy position in Geneva, 
we are reviewing candidates for the position. I expect that the 
President will announce a nominee for the Geneva Deputy in the 
near future. 



39 



QUESTION 13: 

You asked the International Trade Conunission (ITC) to suspend the 
study on the economic impact of action taken under dumping and 
CVD statutes requested by USTR prior to January 2 0th of this 
year. I very much support proceeding with this study and have 
suggested that it be concluded by the end of this year so that we 
will have the benefit of the information when drafting the 
implementing bill for the Uruguay Round. Why have you suspended 
the Hills study? Do you intend to proceed with it in a timely 
fashion so that its results will be useful to us? Will you make 
your decision on this study before the House votes on NAFTA? 



At no time did USTR ask the ITC to suspend the study on the 
economic impact of action taken under dumping and CVD statutes 
requested by Carla Hills. In response to a letter of inquiry 
from ITC Chairman Newquist, Ambassador Kantor promised to review 
the proposed study in light of USTR's overall trade priorities 
and to communicate the results of that review shortly. 

Since that time Ambassador Kantor and his staff have been meeting 
internally to review priorities. In addition to the 
antidumping/countervail issue, two others deserve attention: 
Japan and the Uruguay Round. Requests in these areas will be the 
subject of separate letters to the ITC. 

With respect to Ambassador Hills' request, USTR favors a more 
balanced approach: to examine the economic impact of both the 
trade remedy and the original foreign dumping or subsidy 
practice. The target date for the study would be the same as 
that selected by Ambassador Hills: January 1, 1995. USTR will 
convey this request to ITC in the very near future. 



QUESTION 14: 

Is the possibility of imposing a small border fee to pay for the 
costs of NAFTA implementation being seriously considered? If 
such a border tax is applied, will that not have the effect of 
penalizing NAFTA partners and placing them at a disadvantage vis- 
a-vis imports from non-NAFTA countries? 

ANSWER: 

We are still studying all options for funding outlays associated 
with NAFTA, the side agreements, and efforts to improve border 
conditions. We have not rule out any options at this point. You 
are correct that one of the disadvantages of the import fee 
option is that it runs counter to our effort to eliminate fees 
and duties on bilateral trade. This could create a disadvantage 
for our exports if Mexico or Canada imposed comparable fees on 
our exports, but not on those of other countries. 



40 



QUESTION 15: 

If a small border fee is imposed to be earmarked for clean-up 
along the border or other projects to enhance the environment, 
won't that mean that the revenue raised, in effect will go for 
new spending and not to cover the costs of basis NAFTA 
implementation? Why shouldn't such new projects be funded 
through general revenues like other worthwhile projects? 

ANSWER: 

As noted in response to question 14, we are still considering all 
funding options. A number of proposals raised by individual 
members of Congress and private sector groups have included 
different ideas for earmarking particular funding sources for 
particular uses (including the environment, worker adjustment 
assistance and border infrastructure) , but we have not at this 
point decided how best to proceed or whether to use the idea of 
earmarking. We would welcome your further advice, as well as 
that of other members of Congress. 



QUESTION 16: 

I also want to make note of your pending supplemental request. 
It has been justified by USTR as necessary to complete the NAFTA 
and Uruguay Round. It calls for sj>ending $275,000 to hire new 
people. I cannot imagine efforts to conclude these agreements 
being more intense than it has been in the last two fiscal years. 
I question whether the substantial increase in political hires in 
your agency have left you short of cash to fill the ranks of 
NAFTA and Uruguay Round specialists. Please comment on how the 
increase in the average salary at DSTR has affected your ability 
to fill key political positions left vacant under the hiring 
freeze. 



The pending FY 1993 supplemental appropriation request is needed 
to complete work on the Uruguay Round and NAFTA, two major trade 
initiatives that have been discussed, but not satisfactorily 
resolved, for a long time. 

The supplemental budget request should be viewed in the context 
of the Congressional action to cut USTR's FY 1993 appropriation 
by $1.7 million (8 percent) below the FY 1993 Current Services 
level. In a small agency like USTR where virtually the entire 
budget is committed to the costs of day-to-day operations, an 8 
percent cut leaves absolutely no flexibility to absorb 
initiatives like the Round or NAFTA. The supplemental budget 
request restores a small margin of flexibility to respond to 
administrative demands like the hiring of key staff needed to 
negotiate remaining issues. 

It is not accurate to assert that there is a "substantial 
increase in political hires" at USTR, nor is it true that the 
cost of new hires has left the agency short of cash in FY 1993. 
The total number of political hires at USTR is about the same as 
under the former Administration. The costs of these hires are 
being absorbed within the enacted FY 1993 supplemental 
appropriation level. Thus, there is no relationship between the 
cost of political hires and USTR's request for a supplemental 
appropriation in FY 1993. 



41 



QUESTION 17: 

When do you expect to announce an Administration position on 
renewal of GSP? If GSP is allowed to expire, doesn't that 
threaten the NAFTA since Mexico uses GSP extensively and will 
find tariffs going up significantly just prior to NAFTA 
implenentation? 

ANSWER : 

This week the Administration submitted its proposal for the 
short-term (i.e, fifteen month) renewal of the GSP program to the 
House Ways and Means and Senate Finance Committees. During this 
fifteen month period, the Administration intends to work with 
Congress to develop a proposal for the long-term renewal of GSP. 
The Administration's short-tern renewal proposal is designed to 
prevent an effective lapse in benefits for beneficiary countries, 
including Mexico, by allowing for the retroactive refund of 
duties paid in the event that new legislation is not passed by 
July 4, 1993. 

Next, the United States Customs Service. Michael Lane, the act- 
ing Commissioner of Customs. 

Mr. Lane, we are glad to have you with us. 

I hope all these people that are leaving, Mr. Kantor, are not your 
employees. 

The best thing for us to do is go over and vote. We will be back 
just as quickly as possible. Why don't we all go vote and come back. 

[Recess.] 

Chairman Gibbons. Mr. Commissioner, and the gentlemen that 
are with you there, all friends, go right ahead. 

STATEMENT OF MICHAEL H. LANE, ACTING COMMISSIONER, 
U.S. CUSTOMS SERVICE; ACCOMPANIED BY SAM BANKS, ACT- 
ING DEPUTY COMMISSIO>nER, AND C. WAYNE HAMILTON, DI- 
RECTOR, BUDGET DIVISION 

Mr. Lane. Thank you, Mr. Chairman. 

My name is Michael Lane. I am the acting Commissioner of Cus- 
toms. 

With me here today on my left is Sam Banks, acting Deputy 
Commissioner, and on my right, Wayne Hamilton, our Budget Offi- 
cer. 

I would like to summarize our statement, Mr. Chairman. 

We are pleased to be here today to introduce our 1994 budget re- 
quest. Our request for 1994 is $1.3 billion, $1,311 bilhon, which is 
a decrease of $4.1 million over our 1993 request. 

We are requesting 17,199 FTE, a decrease over the 1993 request 
of 365 FTE. 

As you know, Mr. Chairman, 1994 and in the coming decades the 
Customs Service will face a number of challenges. This will include 
potentially the implementation of the North America Free Trade 
Agreement, the implementation of the outcome of the Uruguay 
rounds, a potential workload increase over the next 10 years of ap- 
proximately 50 percent, and major contributions to many of the 
goals and objectives of the new administration, including deficit re- 
duction, competitiveness, and improvements to the health, safety 
and environment of American citizens. 



42 

At the same time, Customs will bring in revenue during that 10- 
year period close to $200 billion. 

As you well know, Customs also faced a workload increase in the 
previous decade of approximately 50 percent, and that workload in- 
crease was accomplished with staffing that remains basically static 
over that period. We now face the cnallenge of meeting tne new 
decade and the new workload that we will face with a declining 
workforce and a smaller budget. 

In Customs we accept this challenge and plan to perform at an 
even higher level even in the face of these reductions and increases 
in workload. We have set the stage for this by a number of initia- 
tives that have been implemented in the past 5 years. This in- 
cludes a new strategic planning capability, new financial manage- 
ment systems, greater reliance on research and development and 
the application of technology, extensive automation, better 
targeting, increased interagency cooperation, and partnerships with 
industry. 

We also have a secret weapon in our new Commissioner- 
designate who takes on this job with enthusiasm, knowledge, intel- 
ligence and emphasis on teamwork to overcome all obstacles. 

One final point we would like to make. While we believe we can 
meet these challenges and the increased workload that we will be 
confronted with, there are some things that could be done on your 
end to support us. This would include passage of the Modernization 
Act, some utilization of user fees to offset workload increases and 
budget decreases, and also — and our new Commissioner particu- 
larly asked me to mention this — relief fi-om some of the prohibi- 
tions on reorganization and streamlining the Customs Service. 

That concludes our statement, Mr. Chairman. We would be 
happy to answer any questions. 

[The prepared statement follows:] 



43 



STATEMENT OF MICHAEL H. LANE, ACTING COMMISSIONER OF CUSTOMS 

BEFORE THE SUBCOMMITTEE ON TRADE 

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

APRIL 21, 1993 



Mr. Chairman and Members of the Committee, I am pleased to 
be here this afternoon to discuss the activities of the Customs 
Service and present our FY 1994 and FY 1995 authorization 
request. 

Since this is, for the new Members of this Committee, our 
initial encounter, I believe it would be appropriate and 
beneficial if I took the opportunity, to outline for you what I 
believe is the Customs Service's role in contributing to this 
Nation and in functioning as a member of the Executive Branch of 
Government. I also believe I should articulate to you what our 
approaches and successes have been in the recent past and, 
perhaps most importantly, how I believe we can contribute to the 
goals of the new Administration. 

Customs was created by the first Tariff Act of 1789. We 
became a separate bureau of the Department of Treasury in 1927, 
and we were renamed the U.S. Customs Service in 197 3. I wish to 
state clearly and proudly that we regard ourselves as this 
Nation's primary border agency . In that role as border agency, 
we enforce the Tariff Act of 1930 and more than 400 laws for some 
40 other agencies. This involves us in collecting appropriate 
duties and taxes on imported merchandise, determining the 
admissibility of commodities to protect the health and safety of 
the citizens and industries of this country, detecting and 
preventing the illegal entry of drugs, and investigating 
instances of money laundering and trade fraud. 

Throughout our Nation's history, Customs has responded to a 
variety of constantly changing challenges, threats, and national 
priorities. Whatever the specific nature of these changing 
needs, it has always been the responsibility of this agency to 
respond to them in our role as the border agency. 

I would like to recap for you what some of the challenges 
have been and what our responses were in the 1980 's. 

In the 1980 's. Customs endeavored to ensure that this 
Nation's economy and industries had the benefit of the most 
innovative commercial importing systems available anywhere in the 
world. Through the development of the Automated Commercial 
System and the use of electronic interfaces with the importing 
community, we were able to release over 90 percent of all 
commercial merchandise electronically within minutes after its 
arrival in the United States. These approaches helped enable our 
industries to implement just-in-time inventory systems to reduce 
the cost of production and to develop greater efficiencies in 
industrial sectors. 



44 



Also during the 1980's, as this country's position as the 
number one industrial and economic world leader began to be 
seriously challenged, competitiveness became an issue. Customs 
mounted programs to ensure that our industries and our country 
did not adversely suffer from unfair and illegal competition. 
For example, we mounted an Intellectual Property Rights program 
to stop the piracy of American inventions, copyrights, and 
trademarks. We also intensified our efforts to detect illegal 
transshipments of quota merchandise from one country to another 
in order to avoid agreed upon quotas. We enhanced our analytical 
capabilities in order to detect fraudulent merchandise and 
fraudulent country of origin markings, and we implemented 
interdisciplinary fraud team approaches to bring to bear all of 
Customs expertise. 

Unfortunately, in this period our Nation's budget deficit 
and total national debt grew dramatically . It is of particular 
significance, therefore, that in the decade from 1981-1991 
Customs collected $159 billion due to this government from taxes 
and import duties. Last fiscal year. Customs collected 
$19 billion! 

During the 1980 's, cocaine became the primary illegal drug 
of choice. In the decade from 1981-1991, Customs seized 855,334 
pounds of cocaine. Last fiscal year alone, 244,597 pounds were 
seized. We were able to achieve these successes through the 
integration of investigative, inspectional, and intelligence 
programs with an aggressive interdiction strategy that includes 
interdiction of air smuggling aircraft, interdiction of marine 
vessels, improved selective targeting at ports of entry, expanded 
use of canine teams, and the development of high technology 
methods of conducting drug detection examinations. 

The source areas for narcotics, especially cocaine, shifted 
in the 1980 's to Mexico, the Caribbean, and South and Central 
America. We responded by deploying significant, additional 
resources to the Southwest border , enhancing the Southwest border 
facilities through a comprehensive capital improvements 
initiative, and providing the very latest in technology to that 
border area. 

During the 1980 's, the country began to experience an 
increase in unauthorized exportation of critical technology 
desired by foreign countries to build weapons of mass 
destruction. We responded with the EXODUS program, which led to 
dramatic successes during the Gulf War, as we were able to detect 
and interdict technology desired by the Iraqis to develop nuclear 
weapons technology. 

During the 1980 's, the interrelationship between the U.S. 
Customs Service and those of foreign countries became more 
intertwined and more complex. We responded by launching a series 
of efforts to train the customs services of the world in both the 
merchandise processing approaches and enforcement methodologies 
that we had developed. We also provided training and assistance 
in the areas of automation and the standardization of customs 
operations, as a means of facilitating international trade. This 
has led to a very high degree of mutual respect and cooperation 
between U.S. Customs, the Customs Cooperation Council in 
Brussels, and other customs services around the world. 

In part, based upon the knowledge obtained through Customs 
interactions as well as other sources, we became aware that 
structural impediments slowed or prohibited the importation of 
commodities into Japan. We, therefore, participated in the 
Strategic Impediments Initiatives (SIIs) and focussed very 
strongly upon changes that Japan's customs service needed to make 
to provide the same type of innovative services for importing 
merchandise to U.S. exporters that we provide to Japanese 
producers. 



45 



Through the 1980 's, we endeavored to maintain an appropriate 
balance between Customs drug enforcement and commercial missions . 
However, it was perceived by the importing community that Customs 
had tilted too much away from its commercial mission. 
Accordingly, in the late 1980's and early 1990's, Customs 
launched a comprehensive and successful campaign for improving 
the trust, cooperation, and coordination between Customs and the 
importing community. This campaign has resulted in what is 
probably the highest level of mutual trust and cooperation 
between Customs and the importing community that has existed in 
our recent history. 

In the 1980 's, we also became responsible for enforcing a 
number of trade sanctions against foreign countries, such as 
Cuba, Haiti, and Iraq, as determined by the global situation and 
national priorities. 

During the 1980' s, the country's balance of payments pictu; e 
in relation to other nations became a source of great national 
concern. Customs initiated a concerted effort to improve the 
quality of our trade statistics so that we could better supply 
information that would become the basis for accurate projectionf^ 
of this country's balance of payments situation and provide the 
background for effective policy initiatives and trade 
negotiations. 

So far, I have briefly outlined Customs responses to the 
many challenges the Nation has faced over the past decade, a 
period in which this agency has accomplished many things of whicn 
it can be proud. I have emphasized our contributions to budget 
deficit reduction, to this Nation's competitiveness, and to the 
prevention of violations of commercial and related laws. I have 
also outlined our approaches and successes in drug interdiction. 
I must not, however, based upon the pride in those initiatives, 
conclude that we have no problems or challenges remaining. In 
terms of the internal management of the Customs Service, we 
obviously need to provide more institutionalized approaches to 
improving our strategic planning. We must also effectively 
implement a newly designed Trade Enforcement Strategy. We must 
improve the long-term, systematic methods by which we develop 
automated information systems. And we must have a human resource 
plan that makes the strongest possible use of our personnel. It 
should be noted that these initiatives are, in part, based upon 
the findings and recommendations proposed by the GAO General 
Management Review of Customs completed in September 1992. 

While we are proud of our achievements in the 1980 's and are 
eagerly building the managerial infrastructure to continue to 
contribute to national priorities, we believe our focus now must 
be clearly upon how we can contribute to the goals of the Clinton 
Administration . We have thought long and hard on this issue, and 
I would like to address our very important plans in this regard. 

The President has described and outlined key areas of 
emphasis, national priorities, and national goals to which the 
U.S. Customs Service can contribute. Our ability to contribute 
is based upon our having functioned for many years as this 
Nation's border agency and having been responsible for the 
management of commercial trade and the movement of people and 
conveyances. 

The President has emphasized the need for international 
trade to be fair, for the United States to be competitive, and 
for other countries and their industries to play by the same 
rules as we do. In that regard, we can: 

Ensure the fair and effective implementation of trade 
agreements. 



46 



Continue, in particular, to improve the enforcement of 
multi-lateral textile agreements to reduce illegally 
transshipped importations. We have taken action on 
$850 million in transshipped goods over the past two 
years . 

Continue and improve our workings with U.S. industry 
and other agencies to detect the occurrence of 
violations of U.S. Intellectual Property Rights (IPR) 
laws; aggressively enforce, investigate, and aid in the 
prosecution of violators; and impose appropriate 
penalties. Violations of these laws rob U.S. 
industries of the benefits of their research and 
development and strike at the very core of our 
competitiveness. 

- Continue our enforcement efforts against China (and 
other countries if appropriate) to prohibit the 
importation into this country of goods produced by 
forced or prison labor . 

Continue and expand, as appropriate, our help to the 
customs services of foreign nations to assist them in 
facilitating imports into .their country and to provide 
safeguards for trade compliance and enforcement. These 
efforts currently include support to the countries of 
the former Soviet Union, emerging democracies in 
Eastern Europe, and the Arab Gulf nations of Saudi 
Arabia, Kuwait, Oman, and Bahrain. 

Also, as the President has strongly emphasized, providing 
all appropriate advantages and assistance to our economy so that 
it can recover from this recession, provide additional jobs, and 
compete internationally, we are: 

Aggressively enforcing those laws directly related to 
findings of industries in foreign countries selling or 
"dumping" merchandise into the U.S. at below market 
value. We collect antidumping and countervailing 
duties and are providing automated enhancements to 
improve our performance in this area. 

Increasing our scrutiny of transfer pricing , whereby 
related companies (i.e., a company within the U.S. who 
is closely related to or even owned by a foreign 
country) import merchandise into this country at 
artificially low amounts so that they can avoid paying 
requisite and proper duties and taxes, thereby enjoying 
a competitive price advantage in the selling of their 
products. 

Continuing efforts to collect over $20 billion in 
duties and fees annually thereby helping to balance the 
Nation's books . 

Relevant to this discussion is a piece of legislation 
currently under consideration by the Congress. As you are aware, 
the Customs Modernization and Informed Compliance Act (H.R. 700) 
was developed jointly by the trade community and the Customs 
Service to promote Customs efficiency by removing many archaic 
statutory provisions while providing a strong legal foundation 
for expanded automated and electronic processing. For the trade 
community, the bill promotes more efficient Customs processing at 
reduced operating costs. The legislation also provides the trade 
community with a longstanding need by promoting more flexible 
procedures, allowing importers to select their most efficient 
method of conducting Customs business. The Government also 
benefits because of improved Customs productivity, more efficient 
administration of the trade laws, and a working environment that 
insures greater uniformity in Customs processing. 



47 



The Administration has also emphasized environmental 
concerns, as well as concerns about the health and safety of the 
citizens of this country. By ensuring that merchandise admitted 
into this country conforms to the laws the Customs Service is 
directly charged with enforcing, as well as to the more than 400 
other laws Customs enforces, we fulfill our responsibility to the 
public daily, as we examine merchandise and release it into the 
commerce of the United States. Specifically in this area: 

- We are continuing to emphasize our key role in 

protecting the environment by examining, identifying, 
and interdicting imported and exported illegal 
hazardous materials . We work closely with EPA to do 
this. 

We are continuing to"play the primary role at the 
border in prohibiting the entry or export of 
contraband, including drugs . We carry this out by 
emphasizing technological approaches and intelligence 
information. We enjoy unprecedented cooperation with 
commercial industry. State and local agencies, "tate 
National Guards, and our sister Federal agencies;. 

While our primary mission at the border is supply 
reduction, we do play a role in regard to reducing the 
demand for narcotics especially among our high ochool 
population. The Treasury Department's Project 
Outreach is a school-based community drug education 
program, in which Customs is an enthusiastic 
participant. 

In sujnmary, the Customs Service will continue its role as 
the Nation's border agency. This year. Customs is presenting a 
FY 1994 budget request which totals $1,408,381,000. The 
requested amount for FY 1994 includes $2,500,000 for an Automated 
Commercial System (ACS) redesign initiative, which would help in 
our revenue collection. We are requesting a full-time equivalent 
staffing level of 17,229 positions, 367 less than we received 
under the FY 1993 appropriations. 

I believe that Customs is very effectively poised to 
contribute to national goals related to ensuring a level playing 
field and fairness in international competition, to improve the 
economy and reduce the Federal deficit, and to provide for 
protection of the environment and the health and safety of the 
American people. I believe that Customs can carry out this role 
effectively, even with the reductions proposed for this year and 
those planned for succeeding ones, having laid the foundation 
with effective technology and automated systems to perform its 
mission in the most efficient and effective manner possible. My 
level of confidence that the public will feel no impact from 
these reductions, however, could be even greater if certain 
legislative restrictions and earmarkings were removed. 
Additionally, alternate sources of funding may be proposed at a 
later date. 

I hope that these remarks have provided you with insight 
into the U.S. Customs Service, its border mission, achievements, 
and plans for contribution to the Administration's goals. 

This concludes my introductory statement. I look forward to 
hearing any questions, advice, or comments the Committee may have 
regarding Customs FY 1994 and FY 1995 authorization. 



48 

Chairman Gibbons. Well, I see the Clinton drive has hit you as 
far as your budget is concerned, and I notice with an increasing 
workload you lose 365 full-time equivalent positions. How are you 
going to do it? 

Mr. Lane. Well, a number of things, Mr. Chairman, that I think 
will help us be able to do our job and do it as well as before. I 
would say primarily we are looking to increases in the application 
of technology or computer systems. We are redesigning our auto- 
mated commercial system. We are working better and better with 
other agencies, establishing information partnerships, using their 
data to help us target. 

A lot of the efforts we have put into research and development 
are now paying off with technology. User fees have helped offset 
some of our position reductions. The COBRA fees have helped in 
that regard. 

I hope that we will be able to make some proposals in coming 
years to put forth some ideas on how user fees could help us in a 
further way. 

The Modernization Act would help streamline and modernize a 
lot of ancient practices the Customs Service developed over 200 
years. And I think all those things taken together, we can do a bet- 
ter job in managing our agency. 

I think our new Commissioner comes in with a lot of enthusiasm, 
and I think within the Federal sector, the executive branch, there 
will be greater cooperation, less turf battling, and those things 
taken together would be very helpful. 

There are some prohibitions against the elimination of districts 
and earmarking of positions that are troublesome to us, and if 
those could be eliminated, I think that would help us put the re- 
sources in the right place to do the right job. And those are, I 
guess, in combination, the way we would look at being able to han- 
dle that workload. 

Chairman Gibbons. Those restrictions are mainly appropriations 
bill riders? 

Mr. Lane. That is right. 

Chairman Gibbons. Do they originate in the House or Senate, or 
in conference? 

Mr. Lane. One side says House and the other side says Senate. 
I say both. 

Chairman Gibbons. We will try to help you with that as best we 
can. 

Mr. Lane. Thank you. 

Chairman Gibbons. All right. I hope we get the Customs mod- 
ernization bill through with this reconciliation package. Are all of 
the little glitches we had to contend with, have they been worked 
out yet? 

Mr. Lane. No, sir, they are not. We appreciate very much your 
help over the past few years in trying to resolve a lot of the issues 
with the Modernization Act. We think it is a winner for every- 
body— Government, industry, brokers, couriers, importers and ex- 
porters. 

Sam Banks is our expert on that. Would you want to comment, 
Sam? 



49 

Mr. BANfKS. No, sir. We haven't been successful in coming to a 
resolution on that issue that you directed us to at markup. We are 
still working to see if we can t get some kind of compromise agree- 
ment. 

Chairman Gibbons. If we can't, we are just going to have to 
move ahead on our best judgment. I assume you all are ready to 
go and give us your best judgment. We will just have to go ahead 
and let the chips fall where they may. 

Thank you all very much. You do a fine job. Keep up the good 
work. 

[Questions submitted by Mr. Crane and Mr. Lane's responses 
follow:] 



50 



ju^cm 



En OF cysTOo 



May 10, 199 3 




WASHiNGTON, D.C. 



The Honorable Philip M. Crane 
Ranking Minority Member 
Subcommittee on Trade 
Committee on Ways and Means 
House of Representatives 
Washington, D.C. 20515 

Dear Congressman Crane: 

This is in response to your list of questions 
dated April 21, 1993. We are pleased to provide our 
responses as an enclosure to this letter. We have 
transmitted the responses to your staff previously. 

Thank you for your continuing support and 
interest in the U.S. Customs Service. 



Sincerely, 




Michael H. Lane 
Acting Commissioner 



Enclosure 



RKPOKT DRI C, S\IL(;(;i.IN(; TO IMTF.DSTKTESCLSTOMSSFRVK F. l-SniLBf;. M.FRT 



51 



QUESTIONS SUBMITTED BY PHILIP CRANE 

of th« Hous* Ways aod Means Subcofflmltte* 

to 

tba United States Customs Service 



FY 1994 Budget Proposal 

Question (1): Does the proposed budget meet the deficit 
reduction targets in the President's program, or will further 
changes be made during the appropriations process? 

Answer: Our budget is based on the President's plan as 
transmitted to us by 0MB. We have no information regarding any 
further changes to be made during the appropriations process. 

Question (2) : How will you implement the proposed cut of over 
300 FTE (employees)? 

Answer: In FY 1993, Customs will reduce FTE levels by 
attrition only. There is insufficient time to prepare more 
formal reduction plans, such as reorganizations, shutting low- 
yield Ports-Of -Entries, etc. These kinds of options are being 
considered for FY 1994. However, attrition will continue to play 
a substantial role in FY 1994. 

As current attrition rates would not achieve sufficient 
reduction levels to meet Customs assigned targets, other 
alternatives are being considered, such as increased reimbursable 
programs, reorganizations, streamlining, and redefinition of 
program emphases . 

Question (2a) : What programs will be affected? 

Answer: Generally, reductions would be expected to be taken 
across-the-board, where separations occurred, but with some 
specific adjustments. Presently planned reduction targets by 
location for FY 1994 have been adjusted so line functions are not 
hit as hard as overhead positions. Where possible, reductions 
will be taken from supervisory and staff personnel. 

Question (2b) : Will this affect all Customs Districts equally, 
or will some areas of the country gain at the expense of others? 

Answer: Since Customs will be expected to increase staffing 
on the Mexican border, on a location basis, other areas of the 
country will have to suffer disproportionate reductions. 



Question (3) : How will the government-wide cuts in 
administrative costs and personnel ordered by the President 
affect Customs? 

Answer: While our available resources will be slightly 
below the 1993 levels, we expect to be able to provide 
substantially the same levels of service with careful management. 

Question (3a): Aren't these cuts essentially offset by increases 
for inflation? 

Answer: While our request was calculated to include a 
baseline adjustment for inflation, that increase was more than 
offset by the additional costs required to hire 100 new 
inspectors for the Mexican border and for a new initiative for 
ACS redesign. 



52 



Question 4: What is the reason for the $2.5 million initiative tc 
redesign the ACS revenue collection 
svstem? 



Answer: 



The Automated Commercial System (ACS) was developed 
primarily as an operational, not a revenue accounting 
system. Because the original ACS design did not 
primarily focus on revenue collection accountability, the 
current ACS system does not fully support critical 
management controls and reporting requirements of the 
1990 Chief Financial Officer (CFG) Act. 

Currently, Customs ACS collects about $20 billion per 
year. As a result, 0MB has designated Customs as a 
potential "high risk" area regarding collections and 
revenues. The modernization of ACS will ensure proper 
emphasis on the results of revenue collection and 
accountability for revenue receivables, rather than the 
collection process itself. In addition. Customs will be 
more able to comply with 0MB, Treasury and GAG 
recommendations for improved financial and revenue 
systems. 

In light of this potential risk assessment, investing 
$2.5 million to ensure that a $20 billion revenue 
collection system is free from waste and abuse makes 
economic and managerial sense. 



Question (5) : Are there any additional funds requested for ACS 
cargo selectivity redesign? Why not? 

Answer: We did not request additional funds for ACS cargo 
selectivity redesign due to this year's budgetary constraints. 

Question (5a) : How will this project be funded? 

Answer: We will begin using available funds. 



"Your budge- states that the aviation snuggling threat has 
been reduced bv 75% since 1932. Provide detailed 



In Marzr. 1930, at the request of the Office cf 
Management snd 3udge-, SRI International conducted an 
assassr.ent cf tne na.ure and r.agnitude of the air and 
naritiT.e sr.ugcling threat across the southern border cf the 
United States. In this study, SRI established a 
quantitative method of esti.-nating t.he level of air smuggling 
activity across U.S. borders. T.his met.hod, described below, 
has been used by the U.S. Custcr.s Service to measure -re.nds 
in the air sr.ucgling t.nraat since 1932. 

This r.ethcd uses a series of events associated with air 
smuggling aciivity to measure the annual air smuggling 
threat to U.S. borders. Throughout the years, some of the 
original e-zants (or "air threat indicators") have been 
eli.-nmated , mod.fied and/cr replaced, but the fundame.ntal 
concept and methodologies have remained intact. Today, the 
following i.ndicators are used to assess the air smuggli.ng 
threat: suspect aircraft intrusion reports, sm.uggling 
aircraft saizuras, smuggling aircraft crashes, stolen 
aircraft, and FkA lookouns for suspicious aircraft. 



53 



On an annual basis, the individual events for each air 
threat indicator are tallied and weighted according to their 
reliability in indicating an air smuggling event, and are 
then added together to arrive at an annual air threat value 
(see Tables 1 and 2). These annual threat values are rhen 
compared tc -he 1982 value - the established baseline - to 
determine the relative air threat index (Table 3) . 

As illustrated in Figure 1, application of this method 
suggests that air smuggling activity across U.S. borders has 
declined by 75% since 1932. 

In order to ensure that this decline in the level of 
measured air smuggling activity is the result of a decrease 
in actual ac-ivity (as opposed to a decrease in our ability 
to detect i.ntruders) , trends in detection rates (i.e. the 
probability of detection) are assessed and compared with air 
threat trends. As illustrated in Figure 2, air snuggling 
detection rates have consistently increased since 1986, 
indicating that the decline in the level of measured air 
smuggling act:ivity across our borders is most likely the 
result of a decline in the level of actual air smuggli.ng 
activity. 



Table 1: Unweighted Air Threat Measures 



jilft rHR£AT iNDlC^ 


Tons 




;mj 


.■«:> 1 ■>« 1 ;«5 


.-ss. 


,«7 


,3,1 


,9S3 ,SX 


,S„ . ,3, I 


.nTnusxri ^epcars 




y.^'. 


Ji? 


j2» 


...0 


^ji 


4io 


J 73 


M 


217 !2 




71 


A,ac;iAFr s£izu9es 






■7. 


2"i 




i<.5 


'24 


154 


134 




•i 


;3 


c;>ASȣS 




M 


5J 


•■' 


ii 


^s 


32 


21 


■0 


22 




2 


STOLSN AtRCRAfT 




aw. 


i!0 


1J4 


-A 


'5 


JJ 


;o 


SB 


45 


j5 


'2 


iOOtfOUTS 




Ut^ 


-■)B 


ri4 


a.-'. =..ci 


jl7 


581 


JOB 


jo<i r;5 




■55 


-or., -..^r ..r.l 




■■.-,.- 




■"' 1 ''- i ••=» 


2,2 


MO, 


'=" ' "' 1 -'■ 1 "' 1 '" \ 



Tabie 2: Weighted Air Threat Measures 



AIR THftEAT 1 E.« 
iNDICATORS \ I""* 


,3.2 ,31 


,9M HJt ,3tS 


,3., 


»« 


'9*9 


»»ff 


.3,, 


.33. 


^,m,Z,CH ,cn.r. 


.:s 


45 CO 


.l,2U 


^12i 


.--30 


«I,.0 


M« 


50 .o 


72 55 


22 J 


.4 25 


:0 05 


..KCtr itizuns 


.42 


7. ,2 


Ifl.O 


n^i 


10.0 


52 01) 


■-sa 


55 J6 


7«54 


•a -2 


4.58 


28 50 


CKAi^tS 




■0,2 


4 61 


,2 3 


«.•* 


i.72 


4 4. 


:>» 


4-12 


1M 


OS. 


42 


iJOUf* ALIKKAFT 


.Q<i 




904 


5 4S 


4 50 


SSd 


4W 


:as 


2Sa 


2-0 


2 -0 


1 72 


loo.ours ! . a 


72 as 


■44 




1-40 


7B -: 


J2S8 


13 «e 


-,7 -HJ 


.4 .o 1 74 56 i .4 40 1 


r..^r..,u„ , ,,.» 


..= ., 


_^l" 




'■•"■' 


i2i^ 


'"" 


"'" 


..„ 1 „47 ' «7S j 



Ta/b/e J; Weighted Air Threat Measures Normalized to 1982 Index Year. 



AIR 'HR£AT l/VDICA 


^3RS \ <332 1 'MJ 


,S»4 


.«5 


— ; 


^ 


,3S3 1 ,„, ' •1,«7 


.,,1 


^^^r~j 


iPfTRVSlON fiEPORTS 


1 ■ -,. 


■10 


■;d 




^,B 


12. 


■24 


..72 •.!.7 




24 


AIRCRAFT SGZUReS 




"'■" 


1211 


1 12 


n«(, 


nd2 


1.90 


n78 


..42 


„ ,, 


1156 


. 40 


STOLEN AiacRAfT 




z 


.30 


..7U 


"" 


080 


D-54 
70 


1-52 


•147 


1135 


'128 


..2'. 


-..^T,.,U,. 


,7, 


:« 


,a. 


»2 .,7 


0-36 


»" 


"■" 1 "' 




7,2S 



54 



Figure 1: Percent Change in Air Threat Relative to 1982 Index 



120% 



Throat R8latl« to 1962 Index 



100* 



60% 



60% 



40% 



20% 



0% 



100% 



104% 



103% 



""-.$7% 



.87% 36% 



71% 



aa% 



■62% 



1BS2 1983 1Q84 1385 1986 1987 1966 1969 1990 
Flacal ^&r 



Air Threat 



1962 Index 



Figure 2: Air Smuggling Threat vs. Detection Capability 



120% 



100% 



80% 



100% 



20% 



0% 



104% 



109% 




7% 



11%- 



1982 1963 1984 1986 1986 1987 1988 1969 1990 1991 1992 

Fiscal Year 



Air Thraat 



D«tsctlon Rate 



55 



Question (7) 



What is the status of the Honda Audit? When 
will the case finally be resolved? 

The Honda Audit covered entries of imported automobiles 
from January 1, 1989-March 31, 1989. Customs Buffalo 
District has ordered the liquidation of entries for 
this period to commence with the collection of about 
$14 million in duties based on the applicable 
2.5 percent duty rate. Liquidation notices (CF-29s) 
began to be sent to the company on December 23, 1992 
and will continue as the automatic liquidation deadline 
of three years approaches for each entry. Honda has 
filed a protest on the liquidation actions. 

Customs will consider the protest, which allows the 
company to present new information to the District 
Director for consideration, within the administrative 
procedures outlined in the regulations. It should be 
noted that the company is not required to pay any 
duties while the protest is under consideration. By 
regulation, the protest period could take two years. 
If Customs denies the protest, the company has the 
option to file for judicial review with the Court of 
International Trade. However, the duties must be paid 
before filing with the court. 



Question (8): Your budget states that Customs will exanine 5% of 
"high-risk" containers. How do you define and determine "high- 
risk"? 

Answer: Customs regards high-risk containers as those which hold 
cargo originating in a cocaine source or transit country, and 
arrive directly from one of these drug source or transit 
countries. 

Customs determines which countries are high risk source or 
transit countries from prior seizures by U.S. Customs and foreign 
governments and by intelligence gathered from a number of 
sources. 

We have identified 16 countries in South and Central America that 
are high risk as a source of cocaine, for example, Peru, or as a 
transit country, such as Brazil or Venezuela, that is used by 
drug traffickers to hide the actual origin of the drugs. 

We have analysts in each port of entry that review the cargo 
manifest and other commercial data to further refine tne risk 
level of the shipments arriving from high-risk countries and to 
determine which ones will be exaimined. 



Question (9) : The budget states that Congress did not fund 
initiatives for internal controls and integrity in FY 1993. Does 
the FY 1994 budget include funds for these programs? Why not? 

Answer: We did not request additional funds for these 
programs due to this year's budgetary constraints. 



Question (9b) : How will these projects be funded? 

Answer: We will begin through the use of available funds. 



56 



Question (10): Customs received a transfer of $12,777,000 from 
ONDCP for High Intensity Drug Trafficking Areas. Provide a 
detailed breakdown of how and where these funds were used. 

Answer: The funds were not transferred from ONDCP to 
Customs until December, 1992. $8.5 million of these funds will 
be used on the Southwest border: 

$4.8 million for enforcement program special operations, 

S2.8 million for inspection and control special operations, 

and $469 thousand for integrity issues. 
The remaining $4.3 million will be used by the metro HIDTAs: 

$550 thousand to Los Angeles, 

$236 thousand to Miami, 

$491 thousand to Houston, and 

$3 million to New York. 



QUESTION 11. 

"The budget shows that a new a-/iatior, unit vas estaclished 
near Chicagc, Illincis. What is the threat tf smugclmc 
narcotics mtc the U.S. frcm Canada by air?" 

a. "What was the rationale for establishing the unit, 

where is it located, what is its mission, now -uc.t did 
it cost?" 



ANSWER 



k lack of detection and monitoring capability i.n this 
area makes it difficult to offer an accurate threat 
assessme.nt. While some suspicious cross-border air traffic 
has been reported through various intelligence cnannels, 
much of this activity appears related to cigarette and 
alcohol smuggling. 

The establishment of an Aviation Unit in Blcomingtcn, 
Illinois is based on providing aviation support to the 
Special .i.gent in Charge (SAC) and Resident Agent in Charge 
(RAC) offices in the north central United States, 
specifically SACs Chicago, Cleveland, Detroit, Minneapolis 
and RACs ."Milwaukee, Cincinnati, Bowling Green, Columbus, 
Indianapolis, Kansas City, St. Louis, Grand Rapids and Grand 
Forks. Currently, support is obtained through the process 
of sending aircraft, crews and maintenance support TOY to an 
area in response to specific Customs Office of Enforcement 
requests. This process is costly in time and money, 
however, enhanced enforcement results justify operations. 

An aircraft is an ideal surveillance and communications 
platform. Several north central enforcement offices have 
utilized aircraft with significant results. By increasing 
our agency's ability to covertly track and monitor suspects, 
additional assets and violators have been ide.ntified. Agent 
safety is also increased through the use of aircraft. 
Reconnaissance of locations from t.he air is used to develop 
and monitor best avenues of approach for servi.ng warra.nts . 
Real time information is provided on violator location, 
movement and threat during warrant entry. Fleeing violators 
are much more capably tracked from the air while ground 
teams are guided to intercept. 

The establishment of the Bloomington Aviation Unit is 
pending final processing by the Customs Office of Management 
in order to officially become part of the Customs 
organization . 

Three personnel to staff this office will come frcm the 
New Orleans Aviation Branch. Cost involved would be in the 
permanent change of station (PCS) of these three individuals 
at an estimated 340,000 each. All equipment to operate t.he 



57 



unit, with the exception of office equipment and furniture, 
will be drawn from the Mew Orleans branch. It is estimated 
that office equipment and furniture can be rented for 31,000 
per month. 

Space vill be provided by the local airport authority 
which would also pay for the heating and electrici-y costs. 
Customs would pay for heating and electricity for the hanger 
and telephone costs for the facility. Customs' tor.al cost 
for utilities are estimated at 51,000 per month. Other 
miscellaneous items for operations and maintenance are 
estimated to be $500 per month 

Customs estimates total monthly operating expenses for 
the unit to be 52,500. 



QUESTION 12 ■ 

"How many P-3 aircraft does customs operate?" 

a. "Does t.he proposed budget include any funds fsr 
additional aircraft?" 



ANSWER 



The Customs Service operates eight P-3 aircraft. The 
proposed budget does no- include a.ny funds for adcj-iiional 
aircraft. 



Question (13) : The small airport program is self-financing through 
direct reimbursement for services provided. Why is it 
subject to government-wide administrative and personnel 
reductions? 

Answer: 

0MB decided that a proportionate reduction in this 
account was necessary. 

Question: 

a. Doesn't this reduce service, with no net 
effect on the budget deficit? 

Answer: 

This is correct. 



Question (14) : Why does the budget propose an increase in the 
annual overtime pay cap from $25,000 to $30,000? 

Answer: We are merely repeating last year's appropriation 
language request for $30,000. The pay cap figure of $25,000 was 
contained in an another provision of P.L. 102-393. 



Question (15) : Does the Administration have a detailed proposal 
for reforming Customs overtime, and using savings to reduce the 
deficit? Please provide it. 

Answer: Legislation has been drafted which both reforms the 
overtime provisions and accomplishes the savings requested by the 
Administration. This draft legislation has been forwarded 
through Treasury to the Office of Management and Budget (0MB) . 
At present it is under review and subject to modification borh at 
the Department and at 0MB. As soon as the review is complete and 
the Administration reaches agreement on the provisions of the 
reform legislation, we will provide a copy. 



58 



Cus~ctns User Fee Zx-ansion 

Question (1) : Does the Administration have a detailed proposal 
for extending Customs user fees? Please provide it. 

Ansver: Yes. The proposal was conveyed to the Ccraaiitree by 0MB. 

Question (2) : Dees the current merchandise fee (MPF) cover 
commercial processing costs? 

Answer: No. The various exemptions and ceilings ensure a 
shortfall. 



Question (3) : Do you propose to increase the fees to nieet this 
shortfall? 

Answer: The Administration does not have such a proposal at this 
time. 



Question (4) : Do any funds remain in the merchandise user fee 
accounts from prior year's collections? If so, how much? 
Shouldn't these funds be used to cover any shortfall, instead of 
raising the fees? 

Answer: The merchandise processing fee (OBRA) account is a 
continuing Treasury account. As such, there is no "prior year" 
money. 

Question (5) : What were the annual and total amounts of 
merchandise processing fees collected since the fee was created? 

Answer: The following table shows the collections since FY 1987. 



FISCAL YEAR 


1 

MPF COLLECTIONS 
(Millions) 


1987 


S536 


1988 


S656 


1989 


S729 


1990 


S736 


1991 


5484 


1992 


S494 


TOTAL 


S3, 618 



Question (5a) : What were the annual and total amount of Customs 
commercial processing costs since the fee was created? 

Answer: The following table shows the estimates for commercial 
processing costs in Customs: 



FISCAL YEAR 


U.S. CUSTOMS COMMERCIAL PROCESSING COSTS 
(Millions) 


1987 


S535 


1988 


$565 


1989 


$586 


1990 


$618 


1991 


$668 


1992 


$755 


TOTAL 


$3,727 



Note: These costs are estimates based upon Customs reported 
costs adjusted in accordance with the GATT decision. 



59 



Question (6) : What were the beginning and ending balances in the 
merchandise processing fee account for each fiscal year since the 
fee was created? 

Answer: The merchandise processing fee (OBRA) account is a 
continuing Treasury account. The Customs Service deposits 
collections into the account, but does not otherwise have access. 

Question (7) : Your budget proposes to cut 151 inspectors 
overall. It also proposes to fund an additional 50 inspectors 
for the Southwest Border from the COBRA user fee surplus. 

Doesn't this violate the requirement that COBRA funds be used 
only to supplement the number of inspectors in excess of the 
highest appropriated level? Provide a detailed legal rationale 
for the budget proposal . 

Answer: The agency is presently studying ways to accomplish this 
so that service continues. We do not want to make reductions in 
the service provided by COBRA, or to reduce a source of revenue. 
The Treasury Department has also been requested to give their 
views on a resolution to this question. 

We, also, understand that this issue is currently under review by 
your Committee. 

Question (8) : What is the currant cumulative surplus in the 
COBRA user fee account (excess of collections over expenses) ? 

Answer: The cumulative surplus (balance) in the COBRA account 
was 5165,273,000 as of September 30, 1992. 



60 



Questions from Congressman Philip Crane 

Question (1) : 

How does the operation of the Customs Forfeiture Fund compare 
with the new Treasury Forfeiture Fund? 



PuJblic Law 102-393 replaced the Customs Forfeiture Fund with 
a new Treasury Forfeiture Fund. This Treasury Fund is being 
implemented in stages with full participation by all Treasury 
law enforcement bureaus beginning in FY 1994. For the 
current fiscal year, Customs and the U.S. Coast Guard are the 
only full participants in the Treasury Fund. During FY 1993, 
the Treasury Fund is continuing to serve the forfeiture 
program needs of Customs and the Coast Guard while preparing 
the necessary policies and procedures for full Treasury-wide 
application in FY 1994. 

Question (2) : 

Will all money now in the Customs Fund be transferred 
into the Treasury Fund? How much money is involved? 



When Public Law 102-393 took effect in October 1992, it 
allowed for the carryover of 530 million from the old Customs 
Fund into the new Treasury Fund. Excess amounts in the 
Customs Fund, beyond that carryover, were transferred into 
the Treasury general fund. 

Question (3) : 

How will the new Fund affect resources devoted to Customs? 

a. How much did Customs receive from the Customs Fund in FY 
1993, and how much does it expect to receive from the 
Treasury Fund in FY 1994? 



FY 1993 is the first year of operation of the new Treasury 
Forfeiture Fund. This Treasury Fund affords the Department 
with a key option not previously available in the Customs 
Fund. Beginning in FY 1995, excess amounts remaining at the 
end of the prior fiscal year will be available to the 
Secretary for law enforcement purposes. Customs and the 
other Treasury law enforcement bureaus stand to realize 
substantial benefit from the super surplus option of the 
Fund. 

In FY 1993, Customs has been allocated the entire $15 million 
discretionary amount available in the Fund. This is the same 
amount Customs received in FY 1992, the final year of 
operation of the Customs Fund. Customs will also receive 
most of t.he disbursements from the mandatory side of the Fund 
in FY 1993, with very limited amounts being used to establish 
the Treasury Fund. Customs, along with other Treasury 
enforcement bureaus, is now in the process of estimating 
resources it would be requesting from the Treasury Fund in FY 
1994. 



61 



Question (4) 



Will other agencies receive Customs generated resources 
under the new Fund? 

a. Why are Customs resources being used to fund other 
agencies? 



Beginning in FY 1994, monies in the Treasury Forfeiture Fund 
will be contributed by Customs, IRS, U.S. Secret Service, the 
Bureau of Alcohol, Tobacco and Firearms and the U.S. Coast 
Guard. Disbursements from the mandatory side of the Fund 
will be for specific seizure-related expenses. Disbursements 
from the discretionary side will be for expenses more 
generally related to the assets forfeiture program. 

The resources of the Fund are resources that are taken from 
criminal enterprises. The first goal of asset forfeiture is 
to strip criminals of the fruits and instruments of their 
illegal endeavors. The second goal is to promote cooperation 
among law enforcement agencies at all levels of government 
through the equitable sharing of forfeited assets. The 
production of law enforcement resources is a third goal and 
by-product of the first two. 



Question (5) : 



How does Treasury plan to allocate money to the various 
agencies under the new Fund? Could Customs end up 
receiving less than the currently authorized amount? 



The statute authorizes an appropriation as much as $2 5 
million. The entire discretionary amount available to the 
Fund ($15 million) in FY 1993 has been allocated to the 
Customs Service. Of that amount, $2.0 million is to be made 
available to the Coast Guard. The President's budget for FY 
1994 requests $14.8 million for the discretionary purposes of 
the Treasury Fund. No decision has been made on allocations 
for FY94. 



Question (6) 



Will other agencies begin to use the Customs seized property 
contractor? 



To rationalize seized property management under the new 
Treasury Fund, non-Customs bureaus will begin to use the 
Customs contractor as early as this year. IRS has already 
consigned property to the Customs contractor for sale and an 
IRS/Customs memorandum of understanding (MOU) governing this 
effort will take effect this month. Secret Service will also 
enter into similar MOU with Customs in FY 1993. 



Question (7) : 



Was the Treasury Fund legislation ever considered by the 
Ways and Means Committee? 



Answer: 



We have been informed that the Chairman of the Ways and 
Means Committee acceded to a request by the Secretary of 
the Treasury that the Treasury Forfeiture Fund 
legislation be allowed to be introduced during 
conference of the FY 199 3 Treasury General Government 
Appropriations Bill. 



68-144 0-93-3 



62 



Question (8) : 

Do you have any proposed changes to the legislation? 



Since the signing of PL 102-393 on October 6, 1992, our 
experience in implementing the legislation has led us to 
consider several possible constructive changes. We are 
developing Departmental consensus on these changes prior to 
proceeding with any formal amendment. 

Chairman Gibbons. We next have the International Trade Com- 
mission, Peter Watson, Vice Chairman, accompanied by Janet 
Nuzum. Of course, Mr. Watson is known to us, and of course Ms. 
Nuzum is known to us for the excellent work she did here for so 
many years. 

Mr. Watson, why don't you just proceed. 

STATEMENT OF HON. PETER S. WATSON, VICE CHAIRMAN, U.S. 
INTERNATIONAL TRADE COMMISSION, ACCOMPANIED BY 
HON. JANET A. NUZUM, COMMISSIONER 

Mr. Watson. Thank you very much, Mr. Chairman. 

I have a short summary 

Chairman Gibbons. We will put your entire statement in the 
record. 

Mr. Watson. Thank you very much. 

On behalf of Chairman Newquist and my fellow Commissioners, 
I would like to express my appreciation for the opportunity to ap- 
pear here today. 

I understand the purpose of this hearing is to address the Com- 
mission's budget authorizations for fiscal year 1994 and 1995, as 
well as to address questions the subcommittee might have on the 
current operations of the agency. 

Also testifying, as you indicated, Mr. Chairman, is Commissioner 
Nuzum, who, as you indicated, spent some time here on the Trade 
Subcommittee staff. Commissioner Nuzum will provide additional 
information on our newly created Office of International Competi- 
tiveness. 

I would also like to recognize Phil Katz on my right here, our Di- 
rector of the Office of Finance and Budget, and we have other 
members of our staff with us today as well. 

The details of the Commission's requests are contained in the 
budget justification package provided to the committee recently. As 
the chairman has indicated, also provided are written statements 
regarding our request to today's hearing as well. 

Therefore, I will discuss briefly the budget numbers regarding 
the various budget cycles to assist the committee in assessing our 
fiscal year 1994 and 1995 authorization requests. 

First, at the end of fiscal year 1992, the Commission returned 
$228,000. We, in fact, carried a large balance toward the end of fis- 
cal year 1992 as the primary result of savings related to a hiring 
freeze at the agency during most of the fiscal year. 

The Commission approved the expenditure of these additional 
funds as part of a long-range Commission program for replacement 
of personal computer equipment and employees. 



63 

Concerning where the Commission stands on fiscal year 1993 
funds, Congress approved a fiscal year 1993 appropriation of 
$44,852,000, an increase of 5.7 percent over fiscal year 1992. This 
was $300,000 below the Commission's request, and we took the 
cuts across most of the expenditure classifications. 

Probably the most important aspect of the 1993 budget process 
was the addition of language in our appropriation for 1993 which 
provides for amounts not expended in fiscal year 1993 to be carried 
into subsequent fiscal years. We are mindful that while this mav 
afford some degree of fiscal flexibility, the amount carried over will 
affect the appropriation they will have arrived at in response to our 
fiscal year 1994 request. 

We do expect funds carried over from fiscal year 1993 to be used 
to cover some of our fiscal year 1994 expenses. Thus, we monitor 
each month where we stand in terms of unexpended and uncom- 
mitted funds. Our estimates indicate that about $660,000 of funds 
will remain unexpended at year's end. 

About three fifths of this amount is from savings in the person- 
nel areas due to a temporary hiring freeze, pending our reorganiza- 
tion review, which is completed, and the remainder came from 
other services. 

However, current job vacancy announcements will bring us close 
to the requested fiscal year 1994 funded level as we enter fiscal 
year 1994. 

In terms of what we anticipate to be our needs for fiscal year 
1994, even though the Commission is an independent agency, as 
you know, a Commission majority recently approved the chairman's 
proposal for an amended fiscal year 1994 budget request and au- 
thorization request, and an approved 1995 authorization request 
which complies with the President's budget reduction initiatives as 
expressed in his Executive orders. 

The Commission's amended request for fiscal year 1994 totals 
$45,888,000, and funds 474 workyears or full-time equivalents, 12 
below those funded by the fiscal year 1993 appropriation. 

For fiscal year 1995, the Commission's request totals 
$47,041,000, and funds 467 workyears or full-time equivalent posi- 
tions, a reduction of seven below the fiscal year 1994 request. 

Mr. Chairman, exclusive of general pay increases, these requests 
represent net increases for fiscal year 1994 of $564,000, or indeed 
1.26 percent, and for fiscal year 1995, $558,000 or 1.23 percent. 

These requests, as I indicated, conform with personnel reductions 
and the reduction in administrative expenses sought by the Presi- 
dent and his administration. In this respect, the Commission will 
be reducing administrative expenses by 3 percent, or $32,000 in fis- 
cal year 1994, and $28,000 in fiscal year 1995, with personnel re- 
ductions of 19 over the next 3 years. 

Now, we anticipate that the personnel reductions will be accom- 
plished by attrition at the agency, and we do not expect any reduc- 
tion in force. 

The modest increases in each fiscal year include increases in 
space rental charges which are not within the control of the agency 
in that they do not include any program increases. 

Mr. Chairman, we believe that this level of funding will still en- 
able the Commission to carry out its workload. 



64 

The Chairman's prepared statement provides more detail regard- 
ing our anticipated investigative workload. As you know, and I 
would stress that unlike some agencies, the Commission is a reac- 
tive agency and therefore we cannot budget with certainty the re- 
quests for 332 investigations, petitions for dumping, and trade re- 
lief, or other requests for assistance. 

As you know, the chairman asked Commission staff to consult 
with the subcommittee staff, the Senate Finance Subcommittee 
staff and USTR personnel regarding anticipated 332 requests. That 
information is still being assembled. 

As indicated in the chairman's prepared statement, the Commis- 
sion is at this time staffing a newly created Office of International 
Competitiveness. This effort is in major part due to interest ex- 
pressed during last year's budget hearings on how the Commission 
would respond to recommendations in tne Competitiveness Policy 
Council report issued last spring. 

In our review of those recommendations, the Commission real- 
ized that we needed to do more to be prepared to address emerging 
competitiveness issues. I want to emphasize that the staffing of the 
office will be accomplished with the existing vacancies taken from 
other areas, and no new positions have been created. 

The chairman has asked Commissioner Nuzum, as a member of 
the agency's executive resources board charged with oversight of 
the staffing of this Office of International Competitiveness, to pro- 
vide a brief explanation of that office and its purpose, and I would 
now ask her to do that. 

Thank you. 

Ms. Nuzum. Thank you, Mr. Chairman, Congressman Crane. 

It is both a privilege and a pleasure to be invited back into this 
room to be able to explain one of the ways that the International 
Trade Commission is trying to improve its ability to provide you 
with the advice and analysis which you may from time to time 
need. 

On January 12 of this year, the International Trade Commission 
publicly announced the establishment of an Office of International 
Competitiveness. The Commission had agreed to the creation of 
this new office during our deliberations last fall on our annual 
budget request, expenditure plan and related staffing plan. 

The office was created to enhance the capability of the Commis- 
sion to monitor and analyze, in a more comprehensive fashion, the 
issues relating to the international competitiveness of U.S. indus- 
tries. 

As you know, the Commission has long provided both the Con- 
gress and the President with advice and analysis on competitive- 
ness of U.S. industries vis-a-vis foreign industries. 

The new Office of International Competitiveness will complement 
in particular the existing industry-focused expertise in the Office of 
Inaustries and the general economic expertise in the Office of Eco- 
nomics. 

Indeed, the Competitiveness Policy Council chaired by Dr. Fred 
Bergsten has identified the appropriateness of an expanded role for 
the International Trade Commission in this area, in both the CPC's 
initial report to the President and Congress last year, as well as 
its more recent report of March 1, 1993. 



65 

Over the past year, the Commission has had numerous consulta- 
tions with the CPC to explore their suggestions, and we have taken 
their views into account in establishing this new Office of Inter- 
national Competitiveness. 

There are four specific functions of this new office. First, to iden- 
tify and analyze factors that directly affect the ability of U.S. 
industry to compete in the international marketplace relative to in- 
dustries in forei^ countries. These factors include government 
policies, commercial practices, and other economic factors that cut 
across sectoral lines, such as environmental policies, labor laws, 
technology policy, tax policy, or intellectual property right protec- 
tion. 

A second function is to monitor developments in critical tech- 
nologies in the United States and in foreign competitor nations, 
with particular emphasis on the commercial application or impact 
of those critical technologies. 

Third, to monitor economic and policy developments in the major 
trading partners of the United States, with particular emphasis on 
those foreign government policies and commercial practices within 
those countries which significantly affect U.S. competitiveness ei- 
ther in that foreign market or in international markets. 

And finally, the fourth function is to analyze the impact of hy- 
pothesized changes in certain competitive factors to gauge the pos- 
sible effects of such changes on U.S. industry performance in the 
global market. 

These functions are both important and ambitious. We hope that 
this new organizational structure will both broaden and deepen the 
expertise the Commission can offer in its role of providing objective 
nonpartisan advice to the Congress and the President on inter- 
national competitiveness issues. 

We also recognize, of course, the limitations we and all govern- 
ment agencies must face in terms of personnel resources and budg- 
et dollars. Therefore, the Commission was very careful not to cre- 
ate a new sub-bureaucracy that would add new positions and new 
costs to our overall budget plan. And, we tried to be rather modest 
in identifying the initial size of this office. 

The staffing of the Office of International Competitiveness as 
agreed to by the commissioners will comprise 11 positions — 9 pro- 
fessional and 2 support staff — all from existing vacancies. The posi- 
tions assigned to the office are reallocated positions resulting from 
organizational and staffing changes made in other parts of the 
Commission. 

As appropriate, the Commission may supplement these perma- 
nent positions by detailing additional staff from other parts of the 
ITC for temporary periods. In addition, we hope to draw on rel- 
evant sources of information and expertise in other parts of the 
government, as well as in the private sector, so that we do not du- 
plicate existing research efforts. 



66 

Mr. Chairman and members of the subcommittee, the Inter- 
national Trade Commission is sensitive to the need for both the 
Congress and the President to have available to it dispassionate, 
objective analysis that is both intellectually sound and relevant to 
the real world in which we live. The Commission believes that the 
reorganization of our operational staff to include an Office of Inter- 
national Competitiveness will improve the ability of the Commis- 
sion to do just that. 

Thank you. 

Mr. Watson. Mr. Chairman, that concludes our statements 
today, and indeed we will be glad to answer any questions that you 
or other members of the committee might have. 

Thank you. 

[The prepared statements of Chairman Newquist, Vice Chairman 
Watson, and Commissioner Nuzum follow:] 



67 



STATEMENT OF DON E. NEWQUIST, CHAIRMAN 

UNITED STATES INTERNATIONAL TRADE COMMISSION 

BEFORE THE SUBCOMMITTEE ON TRADE 

COMMITTEE ON WAYS AND MEANS 

U. S. HOUSE OF REPRESENTATIVES 

APRIL 21, 1993 

Mr. Chairman and members of the Subcommittee, I am pleased to have this 
opportunity to meet with you today to discuss the International Trade 
Commission's budget authorization request for fiscal years 1994 and 1995, The 
Commission appreciates the Committee's continued strong interest in, and 
support of, the Commission's work. 

Budget Request 

The Commission amended its earlier approved FY 1994 budget authorization 
request to voluntarily comply with the President's budget reduction 
initiatives. The Commission's amended request for FY 1994 totals $45,888,000 
and funds 474 workyears or full-time equivalent positions, 12 below those 
funded by the FY 1993 appropriation. For FY 1995, the Commission's request 
totals $47,041,000 and funds 467 workyears or full-time equivalent positions, 
a reduction of 7 below the FY 1994 amended request. These requests, exclusive 
of general pay increases, represent net increases of $564,000 or 1.26% and 
$558,000 or 1.23% respectively. 

The Commission's budget requests are based on a projection that our workload 
will remain at approximately the current level. However, let me stress that 
the Commission is essentially a reactive agency and that much of our workload 
cannot be predicted. Unlike some agencies, we cannot budget with certainty 
the unanticipated requests for investigations or petitions for trade relief. 
An example of this was the Title VII caseload increase as a result of the 
expiration of the steel Voluntary Restraint Agreements. Other current 
examples would include the requirement of the draft Uruguay Round Agreement 
that injury reviews be conducted of every outstanding Title VII order over 
five years old, and the possible requests for studies on various sectoral 
issues as well as a possible probable economic effects study in parts or all 
of any final trade agreement implementing legislation. 

Import Relief Investigations 

The Commission's primary responsibilities are to conduct investigations under 
the import relief statutes and to undertake studies under section 332 of the 
Tariff Act of 1930 (19 U.S.C. § 1332). Our total investigative case load has 
recently risen from 79 new investigations in fiscal year 1990 to 146 in fiscal 
year 1991 and to 211 in fiscal year 1992. 

The major portion of our case load consists of investigations under the 
antidumping and countervailing duty statutes (section 303 and title VII of the 
Tariff Act of 1930, 19 U.S.C. §1303, 1671 et seq.). The title VII case load 
increased from 44 in FY 1990 to 174 in FY 1992, when the Commission was faced 
with a large increase in workload as a result of the expiration of the steel 
Voluntary Restraint Agreements. We are projecting a decline to 150 new title 
VII investigations in the present fiscal year and a return to a more normal 
level of 100 in FY 1994 and 100 in FY 1995. As I noted above, if the draft 
Uruguay Round Agreement is implemented, it may require injury reviews to be 
conducted of every outstanding Title VII order over five years old; this would 
substantially increase our workload as we project that there will be 
approximately 240 such orders in FY 1994. 

It should be noted here that the number of investigations instituted is not a 
complete measure of workload; the complexity of the investigation and the 
required level of staff participation are other important considerations in 
assessing resource demands. Petitions filed with the Commission often involve 
diverse industries and requires the assessment of complex conditions of trade. 
Recent investigations covered such products as uranium, minivans , sulfanilic 
acid, stainless steel pipes, potassium hydroxide, portable seismographs, steel 
wire rope, sulfur dyes, several types of steel bars, dynamic random access 
memories (DflAMs), steel rails, limestone, stainless steel pipe fittings, 
ferrosilicon, professional power tools, carbon steel flat-rolled products, 
lockwashers, and softwood lumber. 



68 



Among the Commission's more publicized investigations are the so-called fair 
trade or escape-clause cases filed under section 201 -- or, for non-market 
countries, section 406 -- of the Trade Act of 1974 (19 U.S.C §§ 2251 and 
2436). They require the Commission to determine whether domestic industries 
are eligible for import relief and to recommend appropriate action to the 
President. The Commission instituted two such import- injury investigations 
during FY 1992, a 201 investigation on extruded rubber thread and a 406 
investigation on fans from China. We expect that at least two import-injury 
investigations will be instituted in FY 1993, and three import- injury 
investigations will be instituted each year in FY 1994 and in FY 1995. 

The Commission expects that significant resources will continue to be devoted 
to investigations under section 337 of the Tariff Act of 1930 (19 U.S.C. § 
1337). These investigations are based on complaints alleging unfair methods 
of competition and unfair acts in the importation or sale of articles into the 
United States. Typically, they involve alleged infringement of an 
intellectual property right, such as a patent, trademark, or copyright. While 
the spectrum of products and intellectual property rights addressed by section 
337 investigations is quite broad, many investigations involve sophisticated 
technologies. In the intellectual property area, the Commission recently 
completed section 337 investigations involving a wide range of imported 
products, including semiconductors and other computer related products, 
medical equipment, and various consumer goods. 

We are projecting 18 new section 337 investigations in FY 1993 and 18 in FY 
1994 and in FY 1995, compared to 12 in fiscal year 1992. The complexity of 
the technology at issue in a 337 case, the number of alleged unfair acts, and 
the level of staff participation required in each investigation must be taken 
into account. Moreover, complaints that include requests for temporary relief 
require significant additional effort because the Commission must decide, on 
an expedited basis, whether preliminary relief should be granted in advance of 
the Commission's decision on violation. There were three such complaints 
filed during FY 1992 and one filed so far this fiscal year. Perhaps it bears 
note that last year, the Commission assessed and began collection of the first 
civil penalty imposed in connection with a section 337 order. Finally, 
amendments to the section 337 statute could occur in conjunction with Uruguay 
Round implementing legislation which could affect the scope and number of 
cases filed. However, it is not yet possible to predict the impact of these 
changes . 



nd Reports 



Another important responsibility of the Commission is to prepare fact-finding 
reports and analyses for use by the Congress and the President in the 
development of trade policy. This is one of the Commission's most important 
and demanding tasks, because trade policy makers need access to expert 
independent analysis of international trade matters. Many factors make 
careful, deliberate analysis a high priority. These include vigorous 
competition in the world market; disagreements among nations on appropriate 
government intervention in the market place; the fact that the spread of 
technology is accelerating the rate at which comparative advantages shift 
among industries and countries; and the broadened scope of multilateral trade 
negotiations as countries seek agreements on services, intellectual property, 
and other non- traditional trade areas. 

The Commission receives frequent requests from the Congress and the President 
to conduct investigations on trade and tariff issues under section 332 of the 
Tariff Act of 1930 (19 U.S.C. § 1332). With the emphasis placed on trade 
negotiations, we expect that demand for such Commission studies will continue. 
The Commission instituted 19 section 332 studies in FY 1991, 21 section 332 
studies in FY 1992, and projects 20 new section 332 studies in FY 1993 and 22 
new section 332 studies in FY 1994 and in FY 1995. 



69 



Currently, the Commission has 12 section 332 studies underway or being 
considered, with three requested by the President and nine by the Congress. 
Studies currently being conducted or being considered at the request of the 
President include : 

• Regional Economic Trends and Likely Effects of a Hemispheric Free Trade Zone 

• Economic Effects of In|Mrt Restraints Under Title Vll 

• The Economic Effects of Significant U.S. import Restraints 

Studies completed for the President during FY 1992 and FY 1993 to date have 
included: 

Dynamic Effects of Trade Liberalization 

Central and Eastern Europe: Export Competitiveness of Major Manufacturing and Services 
Sectors (Final Report) 

Alfalfa Products: Conditions of Conpetitton Between the U.S. and Canadian Industries 

Services: U.S. and Mexican Sector Profiles and Mexican Impediments to Trade, Phase II 

President's List of Articles Which May be Designated or Modified as Eligible Articles for 
Purposes of the U.S. Generalized System of Preferences--Annual Report 



President's List of Articles Which May be Designated or Modified as Eligible Articles for 
Purposes of the U.S. Generalized System of Preferences--Eastern Europe 

Probable Economic Effects of Inmediate Tariff Elimination Under the U.S. -Canada Free Trade 
Agreement 

Economy-wide Modeling of the Economic Implications of the Free Trade Agreement with Mexico 
and a North American Free Trade Agreement with Canada and Mexico 

Studies currently being conducted at the request of the Congress include: 

Proposed Reorganization of U.S. International Trade Relief Laws 

The Effects of Greater Economic Integration Within the European Comnunity on the United 
States: Fifth Follow-up Report 

East Asian Economic Integration: Implication for the United States 

Global Competitiveness of U.S. Advanced Technology Industries: Cellular Cortmuni cations 

Global Competitiveness of U.S. Advanced-Technology Manufacturing Industries: Large Civil Aircraft 

Global Competitiveness of U.S. Advanced-Technology Manufacturing Industries: Computers 

Mackerel: Competitiveness of the U.S. Industry in Domestic and Foreign Markets 

Dry Peas and Lentils: Conditions of Competition Between the United States and Canada in Third- 
Country Markets 

Trade and Investment Patterns in the Crude Petroleun and Natural Gas Sectors of the Energy- 
Producing States of the Former Soviet Union 

Congressionally requested studies completed during FY 1992 and so far in FY 
1993 include: 

Potential Impact on the U.S. Economy and Selected Industries of the North American Free Trade 

Quarterly Report on the Status of the Steel Industry 

The Effects of Greater Economic Integration Within the European Conmunity on the United 
States, Fourth Follow-up 

Tuna: Current Issues Affecting the U.S. Industry 

Rules of Origin Issues Related to the North American Free Trade Agreement and the North 
American Automotive Industry 

Shipbuilding Trade Reform Act of 1991: Likely Economic Effects of Enactment 

U.S. Market Access in Latin America: Recent Liberalization Measures and Remaining Barriers 

Macadamia Nuts: Economic and Competitive factors Affecting the U.S. Industry 

Live Cattle and Beef: U.S. and Canadian Industry Profiles, Trade, and Factors of Competition 



70 



Other Commission Work Load 

The Commission provided considerable technical support to United States Trade 
Representative (USTR) in fiscal year 1992 and continues to do so in fiscal 
year 1993. During fiscal year 1992 Commission staff members were detailed to 
the USTR's Washington office to assist in a wide variety of activities, 
including the U.S. -Canada Free Trade Agreement, the Uruguay Round negotiation, 
the North American Free Trade Agreement, and the multilateral steel 
negotiations. Currently six staff members are detailed to provide this 
support . 

A continuing activity is our responsibility associated with the Harmonized 
System. The Omnibus Trade and Competitiveness Act of 1988 designated the 
Commission as one of three Federal agencies responsible for formulating 
official U.S. positions on technical and procedural issues addressed by the 
Harmonized System Committee. Section 1205 of the 1988 Act also provided that 
the Commission advise the President on modifying the HTS to implement 
internationally agreed HTS changes, to promote uniformity, to ensure 
modernization, to alleviate administrative burdens, and to make technical 
corrections. In FY 1993, extensive Harmonized System modifications are 
expected to be adopted by the Customs Cooperation Council; the Commission has 
taken preliminary steps to generate the required reports to the President. 

Finally, in addition to maintaining and publishing the Harmonized Tariff 
Schedule of the United States the Commission chairs the interagency Committee 
for Statistical Annotation of the Tariff Schedules (the 484(e) Committee), 
which considers requests regarding statistical annotations, many of which are 
intended to improve comparability between U.S. import and export data. 

The Commission provides background reports on proposed legislation to its 
oversight committees, as well as considerable informal assistance. During FY 
1992 the Commission provided assistance on almost 400 miscellaneous tariff 
bills and responded to numerous letter and telephone inquiries. 

The Commission's responsibilities also include our continuing role in the 
preparation of periodic reports. Reports on specific commodities included 
autos , steel, footwear, rum, synthetic organic chemicals, and ethyl alcohol. 
Other reports included an annual report to the Congress on the operation of 
the trade agreements program of the United States (OTAP) ; a quarterly report 
on Trade Between the United States and China, the Former Soviet Union, Central 
and Eastern Europe, the Baltic Nations, and other Selected Countries; and an 
annual report on the Caribbean Basin Initiative. 

Finally, in responding to interest expressed by both our appropriation and 
authorization oversight committees, the Commission, in approving a FY 1994 
budget request, authorized the establishment of an Office of' International 
Competitiveness, using existing employees and vacancies. Workload and 
staffing are in their initial stages. This office will identify and analyze 
the factors, including government policies and commercial practices, that 
affect the ability of U.S. industry to compete in the international 
marketplace in comparison with its foreign competitors. In addition, an 
environmental working group has been established to assure environmental 
issues are addressed in Commission reports. This working group is headed by 
the Office of International Competitiveness, and includes economists, trade 
specialists and attorneys from other Commission offices. 



Trade Remedy Assistance Office 

During FY 1992, the Commission's Trade Remedy Assistance Office (TRAO) 
responded to 421 public inquiries, a 55 percent increase from FY 1991. In 
response to a Congressional request the Commission instituted an outreach 
program to make small businesses more aware of the assistance which Congress 
intended for them in pursuing remedies under the trade laws. To date, the 
Commission has mailed outreach information to over 300 Government agencies, 
trade associations, chambers of commerce, and Congressional offices; some 
responses already have been received asking for additional information. The 



71 



number of requests for technical assistance by small businesses has continued 
to increase, as has the number of certified small businesses given continued 
assistance by TRAO. Since TRAO was established as an independent office in 
1988, the number of Commission cases in which TRAO has assisted increased from 
1 in FY 1989 to 11 during the last fiscal year. 

Office of Inspector General 

Pursuant to the Inspector General Act Amendments of 1988, the Commission 
established an independent Office of Inspector General. The Inspector General 
is responsible for directing and carrying out audits, inspections and 
investigations relating to Commission programs, and for commenting on proposed 
regulations and procedures regarding their economy, efficiency, and 
effectiveness. During FY 1992, the Office of Inspector General conducted 
numerous audits, investigations and inspections of Commission operations, and 
will continue to ensure that Commission administrative and program activities 
are in compliance with Federal regulations and practices. 

The Commission has allocated 3 and 1/2 full-time permanent positions to this 
Office and has authorized temporary assistance, as appropriate. In addition, 
the Commission has included in its budget request $75,000 to be used for 
contractual audit and review services. 



Conclusion 

International trade concerns will likely remain in the forefront of public 
debate during the coming years. Each new round of trade negotiations and new 
trade legislation will create new requests for technical assistance and 
analysis and for fact-finding studies. The Commission has a sound reputation 
for providing independent, timely and effective data in response to requests 
from the President and the Congress. I feel that this budget request is 
necessary for the Commission to maintain its ability to meet these demands, 
and the confidence of those it serves. 



I believe our estimates of future needs are prudent and that this budget 
request represents the funds necessary to meet our responsibilities. However, 
we have not requested funds for a number of possible workload expansions that 
could occur during FY 1994 and FY 1995. If all these possibilities come 
about, this budget could fall below our manpower requirements. 

Mr. Chairman, I would like to again thank you for the opportunity to discuss 
the Commission's budget request with you today. I will try to answer any 
questions you may have. 



72 



Statement of Vice Chairman Peter S. Watson 
United States International Trade Commission 

House Ways and Means Trade Subcommittee Hearing 
April 21, 1993 



First, on behalf of Chairman Newquist and my fellow Commissioners, I would like to 
express my appreciation for the opportunity to appear today. I understand the purpose of 
this hearing is to address the Commission's budget authorizations for fiscal years 1994 and 
1995 as well as to address questions the Subcommittee might have on the current operations 
of the agency. 

Also testifying with me today is Commissioner Janet Nuzum, whom some of you know as 
a former member of the Ways and Means Trade Subcommittee staff. Commissioner Nuzum 
will provide additional information on our newly created Office of International 
Competitiveness. We are also accompanied today by Mr. Phil Katz, our Director of the 
Office of Finance and Budget. 

The details of the Commission's requests are contained in the budget justification package 
provided to the Committee recently. The Chairman also provided a written statement 
regarding our requests for today's hearing as well. 

Therefore, I will discuss briefly the budget numbers regarding the various budget cycles to 
assist the Committee in assessing our FY 1994 and FY 1995 authorization requests. 

1. First, at the end of FY 1992, the Commission returned $228,000; (This compares 
with the approximately $1.5 million returned at the end of FY 1991). We in fact 
carried a larger balance toward the end of FY 1992 as the primary result of savings 
related to a hiring freeze at the agency during most of the fiscal year. The 
Commission approved the expenditure of these additional fiinds ($500,000) as part 
of a long-range Commission program for replacement of personal computer 
equipment for our employees. 

2. Where does the Commission stand regarding FY 1993 funds? 

a. Congress approved a FY 1993 appropriation of $44,852,000, an increase of 
5.7% over FY 1992; this was $300,000 below the Commission's request; we 
took the cuts across most of expenditure classifications. 

b. Probably the most important aspect of the 1993 budget process was the 
addition of language in our appropriation for 1993 which provides for amounts 
not expended in FY 1993 to be carried into subsequent fiscal years. 

We are mindful that, while this may afford some degree of fiscal flexibility, 
the amount carried over will affect the appropriation level arrived at in 
response to our FY 1994 request. 

We expect ftinds carried over from FY 1993 to be used to cover some of our 
FY 1994 expenses. Thus, we monitor each month where we stand in terms 
of unexf)ended and uncommitted funds. Our estimates indicate that about 
$660, CXX) of funds will remain unexpended at year's end. About 3/5 of this 
amount is from savings in personnel areas, due to a temporary hiring freeze 
pending our reorganization review (now completed), and the remainder from 
other services. [Despite the removal of the freeze, we have remained below 
funded staffing levels during the fiscal year.] However, current job vacancy 
announcements will bring us close to the requested F'Y 1994 funded level as 
we enter FY 1994. 



73 



What do we anticipate to be our needs for FY 1994? 

Even though the Commission is an independent agency, a Commission majority 
recently approved the Chairman's proposal for an amended 1994 budget request and 
authorization request and approved a 1995 authorization request which comply with 
the President's budget reduction initiatives. 

The Commission's amended request for FY 1994 totals $45,888,000 and funds 474 
workyears or ftiU-time equivalents, 12 below those funded by the FY 1993 
appropriation. For FY 1995, tfie Commission's request totals $47,041,000 and funds 
467 workyears or full-time equivalent positions, a reduction of 7 below the FY 1994 
request. 

Exclusive of general pay increases, these requests represent net increases for FY 
1994 of $564,000 or 1.26% and for FY 1995 of $558,000 or 1.23%. 

These requests conform with personnel reductions and reductions in administrative 
expenses sought by the Administration. In this respect the Chairman will be reducing 
administrative expenses by 3% or $32,000 in FY 1994 and $28,000 in FY 1995 and 
personnel reductions of 19 over the next three years. 

We anticipate that personnel reductions will be accomplished by attrition at the 
agency, and we do not expect any reduction in force 

The modest increases in each fiscal year include increases in space rental charges 
which are not within the control of the agency; they do not include any program 



We believe that this level of funding will still enable the Commission to carry-out 
its workload. The Chairman's prepared statement provides more detail regarding our 
anticipated investigative workload. I would stress that unlike some agencies, the 
Commission is a reactive agency, and therefore, we cannot budget with certainty 
the requests for 332 investigations, petitions for dumping and countervailing duty 
trade relief, or other requests for assistance. 

As you know, the Chairman asked Commission staff to consult with this 
Subcommittee staff, the Senate Finance subcommittee staff, and USTR personnel 
regarding anticipated 332 requests. That information is still being assembled and 
assessed. 

As indicated in the Chairman's prepared statement, the Commission is at this time 
staffing a newly created Office of International Competitiveness. This effort is in 
major part due to interest expressed during last year's budget hearings on how the 
Commission would respond to recommendations in the Competitiveness Policy 
Council report issued last spring. In our review of those recommendations, the 
Commission realized that we needed to do more to be prepared to address emerging 
competitiveness issues. I want to emphasize that the staffing of the office will be 
accomplished with existing vacancies taken from other areas, and no new positions 
have been created. 

The Chairman has asked Commissioner Nuzum, as a member of the agency's 
Executive Resources Board charged with oversight of staffing of this office, to 
provide a brief explanation of the office and its purpose. 



Mr. Chairman, that concludes our statements today. We would be glad to answer 
any questions you might have at this time. 



74 



STATEMENT OF COMMISSIONER JANET A. NUZUM 
UNITED STATES INTERNATIONAL TRADE COMMISSION 

Before the House Ways and Means Subcommittee on Trade 
April 21, 1993 



On January 12 of this year, the International Trade Commission publicly 
announced the establishment of an Office of International Competitiveness. The 
Commission agreed to the creation of this new office during our deliberations 
last fall on the annual budget request, expenditure plan, and staffing plan for 
the Commission. The office was created to enhance the capability of the 
Commission to monitor and analyze, in a more comprehensive fashion, the issues 
relating to the international competitiveness of U.S. industries. 

As you know, the Commission has long been providing both the Congress and 
the President with advice and analysis on the competitiveness of U.S. industries 
vis-a-vis foreign industries. The new Office of International Competitiveness 
will complement, in particular, the existing industry- focused expertise in the 
Office of Industries and general economic expertise in the Office of Economics. 
Indeed, the Competitiveness Policy Council (CPC) , chaired by Dr. C. Fred 
Bergsten, has identified the appropriateness of an expanded role for the 
International Trade Commission in this area, in both its initial report to the 
President and the Congress last year, as well as its more recent report of March 
1, 1993. Over the past year, the Commission has had numerous consultations with 
the CPC to explore their suggestions, and we have taken their views into account 
in establishing this new Office of International Competitiveness. 

The specific functions of this office are: 

1) to identify and analyze factors that directly affect the ability of U.S. 
industry to compete in the international marketplace relative to industries in 
foreign countries. These factors include government policies, commercial 
practices, and other economic factors that cut across sectoral lines, such as 
environmental policies, labor laws, technology policy, tax policy, or 
intellectual property right protection; 

2) to monitor developments in critical technologies in the United States 
and foreign competitor nations, with particular emphasis on the commercial 
application or impact of critical technologies; 

3) to monitor, on a regular and systematic basis, economic and policy 
developments in the major trading partners of the United States, with particular 
emphasis on those foreign government policies and commercial practices within 
those countries which significantly affect U.S. competitiveness either in that 
foreign market or in international markets; and 

4) to analyze the impact of hypothesized changes in certain competitive 
factors to gauge the possible effects of such changes on U.S. industry 
performance in the global market. 



These functions are both important and ambitious. We hope that this new 
organizational structure will both broaden and deepen the expertise the 
Commission can offer in its role in providing objective, nonpartisan advice to 
the Congress and the President on international competitiveness issues. 

We also recognize, of course, the limitations we and all government 
agencies must face in terms of personnel resources and budget dollars. 
Therefore, the Commission was very careful not to create a new subbureaucracy 
that would add new positions and new costs to our overall budget plan. And, we 
tried to be rather modest in identifying the initial size of this office. 



75 



The staffing of the Office of International Competitiveness, as agreed to 
by the Commission, will comprise 11 positions (9 professionals and 2 support 
staff), all from existing vacancies. The positions assigned to the Office are 
reallocated positions resulting from organizational and staffing changes made 
in other parts of the Commission. As appropriate, the Commission may supplement 
these permanent positions by detailing additional staff from other parts of the 
ITC for temporary periods. In addition, we hope to draw on relevant sources of 
information and expertise in other parts of the government, as well as in the 
private sector, so that we do not duplicate existing research efforts. 

Mr. Chairman, and Members of the Committee, the International Trade 
Commission is sensitive to the need for both the Congress and the President to 
have available to it dispassionate, objective analysis that is both 
intellectually sound and relevant to the real world in which we live. The 
Commission believes that the reorganization of our operations staff to include 
an Office of International Competitiveness will improve the ability of the 
Commission to do just that. 

Chairman Gibbons. Well, first, I am glad that you have come 
here and presented the testimony that you have. I concur wnth the 
major thrust of the testimony. I am also very glad to see that you 
are voluntarily deciding to comply with the President's guidelines 
on budget. 

Does the current budget that is before us comply with those 
guidelines, or does it need some modification? 

Mr. Watson. Mr. Chairman, the amended budget that we have 
submitted contemplates, excluding salary increases, an increase of 
1.26 percent in fiscal year 1994, and then an increase of 1.23 per- 
cent in fiscal year 1995. 

Assuming that the Congress does in fact pass the President's 
budget request, including the reductions contemplated in his Exec- 
utive orders, the committee may, at that time, wish to indeed 
reduce the budget if they see fit for the amounts of the personnel 
reductions. 

Chairman Gibbons. All right. 

Is there any scaling back of full-time equivalent personnel in 
your budget? 

Mr. Watson. Sir, for 1993 and 1994 there is contemplated some 
12 reductions in FTEs and 7 additional in the fiscal year 1995 for 
a total of 19 over the next 3 years. 

Chairman Gibbons. And on the new agency that you have cre- 
ated within your existing framework, you are taking people from 
existing work and transferring them to that area; is that right? 

Mr. Watson. That is correct, Mr. Chairman. All of the positions 
we are creating are coming from existing vacancies and our exist- 
ing financial allocations. 

Chairman Gibbons. On the studies that you have to make that 
are requested by the Congress and by the administration, what has 
been the result of those? Are they increasing or decreasing or are 
they about the same? 

Mr. Watson. Mr. Chairman, we have in fact seen somewhat of 
a variation over the years. Just to give you an idea of the section 
332 studies that we have had recently, we have had, just going 
back, if you care to, to fiscal year 1990, we had 16 in that year, 

19 in fiscal year 1991, and 21 in fiscal year 1992. We anticipate 

20 in fiscal year 1993, and are projecting 22 respectively for fiscal 
years 1994 and 1995. 



76 

Chairman Gibbons. How about the workload? I am talking about 
the workload in the countervailing and antidumping cases. What 
does that look like? Is that increasing, decreasing, staying about 
the same? 

Mr, Watson. As the Chairman will recall, with the filing of the 
steel cases, we have seen an increase in fiscal year 1992 from 110 
in 1991 to 174 in 1992, and we are expecting somewhat of a de- 
crease in fiscal year 1993 to 150, and to less in fiscal year 1994. 

As vou suggest, it is very difficult to extrapolate from those num- 
bers because in fact our staff level, of course, does not change as 
we peak up. We continue at existing staff levels when we ramp up 
for caseload increases, and we will do things to handle increases in 
workload as best we can. 

Chairman Gibbons. Thank you very much. It is a well-run agen- 
cy, and we realize your budget is only — excuse me. Mr. Crane nas 
some questions he would like to submit for the record. 

Mr. Watson. We would be pleased to respond to them. 

[Questions submitted by Mr. Crane and Mr. Newquist's re- 
sponses follow:] 



I 



77 



RESPONSES TO QUESTIONS SUBMITTED BY CONGRESSKAN PHILIP M. CRANE 

as a follow-up to 

The April 21. 1993 House Ways and Means Authorization Hearing 

Submitted by the Chairman Don Newquist 
V U.S. International Trade Commission 

April 27. 1993 



Please outline in detail how your budget reflects the President's 
personnel and administrative reduction initiatives. 

What reducftion in FTEs will the ITC absorb? 

r: The President, in his executive order, called for a U percent 

reduction, measured on a full-time equivalent (FTE) basis, over 
the next three years . Each agency was required to achieve 25 
percent of the reduction by the end of FY 1993, 62.5 percent by 
the end of FY 1994 and 100 percent by the end of FY 1995. 

The Commission, through its FT 1993 appropriation was funded at a 
level of 485 FTEs. A 4% reduction equals a total of 19 FTEs, over 
three years. This would require reductions of 5 FTEs in FY 1993, 
an additional 7 FTEs in FY 1994 for a total of 12 FTEs, and an 
additional 7 FTEs in FY 1995, for a total of 19 FTEs. The 
Commission's budget reflects workyears or FTEs going from 485 Co 
481 for FY 1993; from 481 to 474 for FY 1994, for total of 12; 
and from 474 to 467 for FY 1995, for a total of 19. 



Which ITC programs will be affected? 

Answer : In reducing the budget authorization request, the Commission 
reflected the reduction in FTEs in resources projected for 
investigations and research studies under section 332 of the 
Tariff Act of 1930. Section 332 investigations are conducted on a 
request basis and afford somewhat greater flexibility in 
allocation of resources and timing compared with most of the 
Commission's other investigations, which are conducted as required 
by law within statutory time constraints, and in response to 
petitions and complaints filed under U.S. trade laws. 

Does the budget reflect a 3% reduction in administrative costs? 

Answer : Yes. The President's budget reduction initiatives called for a 3% 
reduction in administrative expenses, adjusted for inflation. The 
Commission applied the inflation factor provided by the Office of 
Management and Budget (0MB), 2.7% for FY 1994 and 2.6 % for FY 
1995, and then achieved the required 3% reduction. 



fift-1A4 n _ Q^ _ /I 



78 



To which adminiscracive coses does che reduction apply, if any? Which 
are exempted from these reductions? 

:: In accordance with instructions from the Office of Management and 
Budget (0MB) , the administrative cost reductions were applied to 
vail non-personnel costs, with the exception of GSA space rental 
payments and equipment. 



Your budget includes money for cost-of-living pay increases of 2.2% and 
2% in FY 1994 and FY 1995 respectively. At the President's direction, 
other federal agencies will not be allowed these increases. Why should 
the ITC not be a part of the President's initiative in this respect? 

:: The Commission will seek to participate fully in the President's 

budget reduction initiatives. At the time the Commission approved 
its FY 1994 and FY 1995 budget authorization requests, the FY 1994 
pay increases were being discussed by the Congress and were still 
an unresolved issue. Therefore, the Commission decided to include 
pay increases in its request, but reflected them as a separate 
line item increase chat could be easily segregated and eliminated 
by authorization and appropriation committees if necessary and 
appropriate. 

It is our understanding that pay increases are currently planned 
at 2% for FY 1995. 



What inflationary factor was calculated in your budget? To which costs 
did it apply? Which not? 

r: As stated above, the Commission applied an inflation factor 

provided by the Office of Management and Budget (0MB), of 2.7% for 
FY 1994 and 2.6 % for FY 1995 to all non-personnel costs, with the 
exception of GSA space rental payments and equipment. The 
Commission then applied a 3% reduction to these same categories of 
expense . 



What was the average salary level of employees for FY 1991-19937 What 
average salary levels are projected for FY 1994-95? 

r: The average salary of Commission employees, excluding related 
employee benefits, was $46,608 for FY 1991 and $49,925 for FY 
1992, and is currently $52,600 for FY 1993. The FY 1991 figures 
are understated because for virtually all of the year there were 
two vacant Commissioner slots, accompanied by vacant related 
staff. 

The average salary of Commission employees, excluding related 
employee benefits, projected for FY 1994 and FY 1995 is $54,000 
and $55,000 respectively, which is based on anticipated lower pay 



79 



increases . 



5. How many employees did you detail to USTR in FY 1993? Mere any of them 
detailed to Geneva? How many detailees will you be sending to USTR in 
FY 1?94? 

Answer : In 1993, the Commission had 6 detailed employees to the USTR, on a 
full-time basis, to provide on-site technical assistance and 
support to the USTR in Washington, during the entire fiscal year. 
None of the 6 ITC employees at USTR were detailed to Geneva. For 
1994, initially. 3 ITC detailees will be on site at USTR for a six 
month renewable rotation. Three additional ITC detailees will be 
replaced based on assessment by the Commission. 

6. Does ITC plan to hire any consultants or experts under 5 USC 3109 for FY 
1994? Does ITC currently have any such consultants or experts? What 
are their functions? 

Answer : The Commission expended $63,323 for consultant services during FY 
1992. Of that amount: $49,327 was expended by the Commission's 
Inspector General for audit and review services; $8,250 in 
relation to a NAFTA study completed for the USTR; and $5,746 for 
various administrative services. So far during FY 1993, $58,000 
has been obligated for consultant services, all of which has been 
in support of the Inspector General's audit and review services. 
The Commission has included $75,000 in its FY 1994 request for 
this purpose . 



7. What further resources do you expect to expend on completion of pending 
steel cases? 

Answer : Currently, there are 73 steel cases that are active at the 
Commission. These cover nine product groups but are being 
conducted as only two separate cases (special quality bar, due out 
July 9, and flat- rolled steel products, due out August 4), which 
cover 21 countries . 

There are nine staff members working on flat-rolled steel and five 
are working on special bar steel, although most of these are not 
working on the cases full time. However, other Commission 
resources will be expended on the cases (printing and mailing 
costs, etc.) Therefore, a rough estimate of costs yet to be 
incurred might be based on assuming full-time work of the assigned 
staff for the remaining 12 weeks of special bar steel and 16 weeks 
of flat -rolled steel. At an average annual salary of $50,000 
(estimated) , staff costs incurred in connection with current steel 
cases would be about $60,000 for special bar and $140,000 for 
flat-rolled steel, for a total of $200,000 in total staff 
resources for the remainder of the steel cases. 



80 



However, the USITC is not finished with steel cases. There are 
two cases, covering four countries, awaiting preliminary decisions 
at the Commerce Department (stainless steel wire rod and stainless 
steel pipe) and at least two in the pre- filing stage. (A case on 
carbon steel wire rod was filed on Friday, April 23, 1993). The 
" average cost to the USITC of such cases is $115,000 per case. 

What is the status of the 332 study of the economic effects of import 
restraints under title VII which was requested by USTR Carla Hills in 
January? In a memo to you dated Febrxiary 22, Commissioner Nuzum 
questioned the "circumstances surrounding the request" for the study and 
questioned the "underlying purpose and value" of the request. 

In your view, does the statute provide that requests from the President 
for 332 studies occur only after thorough consultation with ITC? Does 
the statute state that the President, may make a request for a study 
only after thoroughly consulting with their own staff? Does the statute 
provide that the ITC may accept or reject a study based on its 
assessment of motivation, value or underlying purpose of the request? 

:: Section 332(g) of the Tariff Act of 1930, 19 U.S.C. 1332(g) 

provides that the Commission shall make such investigations and 
reports as may be requested by the President, the Committee on 
Ways and Means of the House, the Committee on Finance of the 
Senate, or either house of Congress. The statutory language 
requires the Commission to act at the request of an authorized 
requestor, and makes no specific provision for mandatory 
consultation. It has, however, been a long-standing practice of 
the USTR (who acts with authority delegated from the President) , 
as well as the designated committees, to consult with the 
Commission concerning the scope and timing of investigations. 
This practice assures that the terms of requests are clear and 
that the appropriate Commission resources are available to 
complete the investigation within the timeframe desired. 

The 332 study to which you refer has not, yet been formally 
initiated by the Commission and, in response to specific 
instruction from USTR Kantor, is on hold. After consultation with 
my colleagues within the Commission, I wrote Ambassador Kantor on 
March 2 , 1993 , to seek further guidance regarding the scope and 
nature of the requested study. This was done in light of 
Commission current and future resources, as well as USTR's 
interest in the study and USTR's additional research priorities. 

In response. Ambassador Kantor wrote to the Commission on March 
26, 1993 to request that the ITC suspend the request for a study 
of the effects of Title VII relief until he and his staff have 
decided on their research agenda for the ITC. The Ambassador will 
be forwarding to the Commission the Administration's priority 
requests for 332 studies on such topics as the Uruguay Round, 
U.S. -Japan trade, and other major trade topics. He indicated that 



81 



"at chat Cime we will determine whether or not to request from you 
studies related to U.S. trade laws. In the meantime, please 
consider any requests from the prior Administration to be 'on 
hold'." USTR clarified this to mean that the only request that 
the Commission should consider Co be "on hold" is the request 
V concerning the economic impact of U.S. antidumping and 
countervailing duty laws . All other studies requested by USTR 
should continue on schedule. 

This approach is consistent with Che Commission's practice to 
comply with requests from both USTR and the designated 
congressional committees Co change Che terms of, or even suspend 
or terminate, their previously requested investigations. In the 
last -three years, the Commission has terminated ongoing 
investigations at Che request of the Mays and Means and Finance 
Committees and Che USTR when Cheir needs have changed. There are 
three recent instances in which the Commission has Cerminated a 
section 332 investigation at the request of the requestor. 

In the mosc recenc inscance, Che Commission in December 1992, 
terminated investigation No. 332-315, Uranium and Uranium 
Enrichment Services, at the request of the Senate Committee on 
Finance. The invescigacion had been insticuced in September 1991 
at the request of Che Finance Commictee. In April 1991, the 
Commission terminated investigation No. 332-304, Red Tart 
Cherries, at Che requesc of che House Commiccee on Ways and Means. 
The invescigacion had been inscicuced in November 1990 at the 
request of Uays and Means. 

In November 1990, Che Commission cerminated investigation No. 332- 
292, California Pesticide Residue Initiative: Probable Effects on 
U.S. International Trade in Agricultural Food Products, at Che 
request of the USTR. The Commission had instituted the 
investigation in May 1990 at the request of the USTR and had 
furnished a preliminary confidential report to USTR in September 
1990; USTR requested Cerminacion before Che final reporc was 
issued. 



As I underscand ic, there are four pending 332 studies requested by the 
President and nine from Congress. After che elections of 1992, there is 
a new President and a new Congress. Why was only the dumping/CVD study 
halted pending a review of che motivation, value, or underlying purpose 
of the original request? Does the statute allow che ITC Co rejecc a 
study if it thinks Che study may require too much resources? 

r: The dumping/CVD case was not the only one reviewed by the 

Commission with Che requescor. During Che Commission's appearance 
before che House AppropriaCions Subcommittee on Commerce, Justice, 
State and the Judiciary on March 2, 1993, members of Che 
Subcommittee expressed a desire to have the Commission contact 
USTR, and the Finance and Ways and Means Committees regarding the 



82 



priority of current requests. This was asked in the context of 
concern about the resources required by ITC reports and 
investigations in general. 

As Chairman, I wrote to Ambassador Kantor as well as Chairman 
^ Moynihan and Chairman Rostenkowski on March 11, 1993, requesting 
their assistance regarding current and expected demand on 
Commission resources required to respond to requests for section 
332 investigations. 

The statute does not allow the Commission, acting on its own, to 
reject a study on the basis of resources. As a practical matter, 
however, the quality of any study may be affected by the 
availability of resources. This is one of the reasons why 
consultations between the Commission and the requestor are 
beneficial, to ensure that the Commission's work is responsive to 
the requestor's needs. 

10. Given the handling of this study thus far, it appears that Democratic 
Commissioners have no interest in having this study go forward. Why 
does the budget submission list this study as consuming ITC resources? 
If you proceed with this study, will you make an interim report 
available by the end of this year so that we may have access to 
pertinent information as we consider implementation of the Uruguay 
Round? 

Answer : The Commission's action on the dumping/CVD request will proceed 
upon receipt of USTR's direction, with regard to this and other 
USTR research requests. 

The ITC submission does not reflect resources budgeted 
specifically to the 332 study that you have referenced. The ITC 
does not budget funds for particular studies or requests. 
Commission resources for any given 332 are allocated from the 
ITC's public investigations and research studies monies. 

To help explain the workload in the section 332 area, the ITC's 
budget justification lists all the studies currently being 
conducted or considered by the Commission at the request of the 
President and Congress. As you are aware, the Commission is 
statutorily required to conduct these studies, and the resources 
included in the budget are based not on any specific study, but 
the total projected studies. In this case, 20 for FY 1993, 22 for 
FY 1994 and 22 for FY 1995. 

The completed study based on the USTR request will be provided to 
USTR. It is up to USTR, as the requestor to release the study to 
the public and Congress. An interim report would be made only if 
it is requested by USTR and would be released by that agency 
unless the USITC were directed otherwise as part of the request. 



I 



83 

Chairman Gibbons. We realize you are not directly supervised 
by the President and we have primary responsibility for your budg- 
et. 

Thank you. 

We have a witness now from the American Association of Export- 
ers & Importers 

STATEMENT OF EUGENE J. MILOSH, PRESIDENT, AMERICAN 
ASSOCIATION OF EXPORTERS & IMPORTERS 

Mr. MiLOSH. Good afternoon, Mr. Chairman. 

My name is Eugene Milosh, and I am president of the American 
Association of Exporters & Importers. AAEI believes that congres- 
sional and business participation is necessary for Customs to im- 
prove its commercial operations. 

The past years have shown a dramatic change in Customs treat- 
ment of the importing and exporting community through the appli- 
cation of more efficient and logical procedures. As a result, rela- 
tions have improved with the trade community, and, if anything, 
we would like to see a budget increase to continue this improve- 
ment trend. 

Although the association is aware of the budgetary pressures fac- 
ing the U.S. Government, the logic of increasing a revenue-produc- 
ing agency's budget cannot be disputed. The rationale for an in- 
crease in the fiscal year 1994 and fiscal year 1995 commercial oper- 
ations budget would allow Customs to expand in many areas. 

For example, it would enable an increase in the number of im- 
port specialists, who are Customs personnel directly responsible for 
classifying and appraising merchandise. And this would lead to 
greater facilitation and collection of more duties. 

Customs budgeting should allow Customs to further develop its 
automation programs benefiting both Customs and the U.S. im- 
porting and exporting industry. Increased automation will create a 
more cost-efficient Customs Service and therefore a greater return 
on ftinds appropriated for Customs use. 

However, if budget reductions are deemed necessary, the ques- 
tion which must be asked is: where can they be made with a mini- 
mum of impact on Customs operations? Consideration must be 
given to applying budget cuts fairly between Customs enforcement 
and commercial operations, but not at the expense of commercial 
operations where the revenues are derived. 

A few words about user fees. I am pleased that during the past 
election the new administration did not use the slogan, "Read my 
lips, no new user fees." Many in the administration and Congress 
believe that the Customs budget should depend upon an increase 
in the scope of user fees. 

The association is extremely concerned about the recent pro- 
liferation of user fees. Approximately 6 years ago a merchandise 
processing fee (MPF) was imposed followed by a harbor mainte- 
nance fee (HMF). In the past few years there have been inspection 
fees proposed and adopted on some items such as cotton, potatoes 
and pecans. 

Import charges were posed by the FDA, Federal Communications 
Commission and other agencies attempting to cover the cost of 



84 

their operation. Another fee is being proposed for NAFTA trans- 
actions. 

In most cases there is no relationship between the surcharges 
and the services rendered. If there were, we might support user 
fees. 

For instance, for Customs automation, the fees are collected and 
deposited into the general treasury along with other taxes. Thus, 
there is no one-to-one correlation between these fees and services 
rendered. 

In essence, user fees are no more than disguised taxes, resulting 
in increased cost to U.S. business. 

The purpose of the merchandise processing fee, an ad valorem 
fee of 0.19 percent, is allegedly to cover the cost of processing an 
importer's entries. The MPF ranges from a low of $21 to a high of 
$400 for each entry. There has never been proof, however, regard- 
ing the actual cost of processing these entries, and whether it de- 
pends on the kind of product. 

The merchandise processing fee was recently raised over the ob- 
jections of U.S. business in an attempt to strictly cover the entire 
cost of Customs commercial operations. 

From a business point of view, the fee has increased the cost to 
importers beyond the basic fee itself. And the reason is that many 
Customs' brokers charge an additional fee to compensate an ac- 
count for the user fee. In addition to the MPF, importers must still 
pay contractors hired by Customs for inspection of goods as re- 
quired by the central examination system. 

Another cost to importers is created by the need to record the 
user fee as a separate entry on its books. 

Finally, the cost to the United States will be measured in GATT 
sanction compensation or mirror-image taxes on U.S. exports. If the 
United States continues its failure to bring the fee into GATT com- 
pliance, its trading partners will have a legitimate gripe to request 
and receive compensation in the form of lower tariffs on imports, 
thus negating the revenue raised. 

I would like to mention that with regard to the other agencies 
represented today. AAEI supports additional budgeting for the ITC 
and the USTR offices. With the proliferation of antidumping and 
countervailing duty statutes, as exemplified by steel, uranium and 
other products, the association urges that moving forward with a 
dumping CVD impact study that was requested by the former 
USTR should be treated as a priority. The study is extremely time- 
ly and has broad policy implications to our trading partners, to the 
USTR, Congress and the consumer. And, we believe the United 
States should set an example in the area of dumping. 

In conclusion, we would also like to endorse some of the other 
policy initiatives mentioned today; that is, extension of GSP for 1 
year, and granting GSP status to the Russian Republics and other 
Republics of the former Soviet Union. 

We also endorse CBI parity for 3 years, as proposed by chairman 
Gibbons, and extension of NAFTA to Chile and other American 
FTA participants. 

Thank you very much. 

[The prepared statement follows:] 



85 



STATEMENT OF EUGENE J. MILOSH 
American Assoctation of Exporters and Importers (AAEI) 

Introduction 

Good afternoon, Chairman Gibbons and members of the Trade 
Subcommittee. My name is Eugene Milosh, and I am President of the 
American Association of Exporters and Importers (AAEI) . AAEI is a 
national organization of approximately 1200 U.S. firms active in 
importing and exporting a broad range of products including 
chemicals, machinery, electronics, textiles and apparel, footwear and 
foodstuffs. The Association's members also include customs brokers, 
freight forwarders, banks, attorneys and insurance carriers. Members 
work closely with the U.S. Customs Service, and most deal with 
Customs on a day-to-day basis. 

AAEI appreciates the opportunity to discuss Customs funding and the 
President's proposal to make permanent all Customs user fee 
authority. The Association recognizes the increasing budgetary 
pressures on government agencies, but believes decisions must be made 
to improve Customs' commercial operations and methods for generating 
revenue. As the Committee is aware. Customs has a role of 
facilitating trade. And, although the Budget Authorization may seem 
a dry economic exercise, the decisions made based on this hearing 
will have a major effect on international trade. AAEI ' s comments 
today will focus on Customs' budget for FY 1994 and FY 1995 as well 
as the President's user fee proposal. 

Controlling Revenue Through Strategic Budget Management 

AAEI believes Congressional participation is necessary for Customs to 
improve its commercial operations. The past years have shown a 
dramatic change in Customs' treatment of the importing community 
through the application of more efficient and logical procedures. As 
a result, relations between Customs and the trade community have 
improved, and a budget increase is needed to continue this 
improvement trend. 

Although the Association is aware of budgetary pressures facing the 
U.S. government, the logic of increasing a revenue-producing agency's 
budget cannot be disputed. An increase in the FY 1994 and FY 1995 
commercial operations budget will allow Customs to expand in many 
areas. For example, it will enable an increase in the number of 
import specialists, who are Customs personnel directly responsible 
for classifying and appraising merchandise. This will lead to 
greater facilitation of trade and the collection of more duties. 

An increase will also allow Customs to further develop its automation 
programs, benefitting both Customs and the U.S. importing industry. 
Increased automation will create a more cost-efficient Customs 
Service and, therefore, a greater return on funds appropriated for 
Customs' use. AAEI stresses, however, that automation should not be 
used as an excuse for reducing the number of Customs commercial 
personnel. Customs must have adequate staffing to run its automation 
programs as well as to meet its classification and appraisal 
responsibilities. Computers cannot classify, appraise, examine goods 
or issue rulings. Personnel and automation programs are 
interdependent and must be allowed to grow together. 

If budget reductions are deemed necessary, the question which must be 
asked is where they can be made with a minimum of impact on Customs 
operations. The April 9, 1993 edition of the Washington Post 
indicated a plan to cut the U.S. Customs Service budget by one to two 
percent. If this cut is inevitable, consideration must be given to 
applying it fairly between Customs enforcement and commercial 
operations. 

Budgets must not be cut blindly, and revenue must not be raised over 
the unanimous opposition of U.S. business. For instance, rather than 



86 



reducing Customs staff, it would be more desirable to postpone 
implementation of costly programs or ones requiring a significant 
monetary investment. Increasing Customs staff, combined with 
efficient automation will generate more revenue at a relatively lower 
cost . 

Further, attention should be paid to increasing the efficiency of 
programs already in place. One area, more than most, cannot tolerate 
budget reductions without severely harming Customs' effectiveness. 
That area is the cost of purchasing and properly maintaining computer 
hardware and software, both at Headquarters and throughout the field. 
Customs has developed a sophisticated automated environment, both 
external and internal. The time has passed in which Customs could 
function without such a system. 

Customs has had the foresight and wisdom to target its system's 
design "ahead of the curve." Technology is advancing so rapidly that 
had Customs sought only to adopt the "lowest common denominator" 
hardware and the "most affordable" software, the system would 
continually be obsolete and unable to cope with the flood of data and 
the systems used by importers, carriers, banks and others. Customs' 
outlays for technology would still be expensive, but they would not 
be achieving the efficiencies of the systems Customs has developed. 

The private sector has accepted that technology upgrades are going to 
be a constant and unavoidable cost of doing business. Customs also 
will need to incur such costs of upgrading hardware and software. 
Happily, the benefits of these expenses are relatively visible. If 
these upgrades are not made or are delayed for too long, however, the 
harm done will be even more apparent. This Committee has been very 
supportive of Customs' automation efforts in the past, and we ask 
your continued support during this period of budgetary restraint. 

User Fees Are Not A Revenue-Raising Solution 

Customs was established in 1789 to protect the borders and revenue of 
the United States. Without Customs, the flow of all types of goods 
into the U.S. - genuine, counterfeit, beneficial, dangerous - would 
be unimpeded. Legally entering merchandise and paying Customs duties 
is not a privilege. It is required by law. Those who choose to 
import are taxed, in the form of duties (tariffs) , for doing so, with 
billions of dollars collected, benefitting the General Treasury. As 
such, the cost of this operation should be borne by general revenue 
and not by double taxation of the importer. 

For this reason, AAEI remains opposed to the principle of Customs 
user fees. The fees are a form of double taxation for govern- 
ment-mandated services. The U.S. Customs Service is a revenue 
collection agency which also functions to regulate trade. In its 
collection capacity, its role is analogous to the role of the 
Internal Revenue Service in collecting income taxes. To impose a 
"user fee" for the privilege of paying mandatory Customs duties as a 
condition to entry of imported merchandise is analogous to charging a 
taxpayer a fee for the privilege of filing an income tax return and 
paying income taxes. This is a concept which would clearly offend 
the taxpaying public and is no less offensive to the importing 
public. 

Customs clearance of imported merchandise, inspection of merchandise, 
assessment of duties, and enforcement of regulations, are not 
"services" to the importer. It is Customs' obligation to the public 
to carry out these functions for the general welfare. 

Many in the Administration and Congress believe that the Customs 
budget, especially any increase, should depend upon an increase in 
the scope of user fees. AAEI disagrees. The Association is 



87 



extremely concerned about the recent proliferation of user fees. 
Approximately six years ago, a Merchandise Processing Fee (MPF) was 
imposed followed by a Harbor Maintenance Fee (HMF) . In the past two 
years there have been inspection fees proposed and adopted on such 
items as cotton, potatoes and pecans. Various other inspection fees 
have also been adopted by the government. Import surcharges were 
proposed by the Food and Drug Administration, the Federal 
Communications Commission and other agencies attempting to raise 
revenue to cover the cost of their operations. Another fee is also 
being proposed for NAFTA transactions. 

These surcharges are supposedly for services provided by the various 
agencies overseeing shipments. However, in most cases, there is no 
relationship between the surcharges and the services rendered. In 
fact, the "fees" are collected and deposited into the General 
Treasury along with other taxes. Thus, there is no one-to-one 
correlation between these "fees" and services rendered. In essence, 
user fees are no more than disguised taxes resulting in increased 
costs to U.S. business. 

The fact that the form of the "fees" generally bears no relation to 
the service provided is best illustrated by example. The purpose of 
the MPF, an ad valorem fee of 0.19%, is allegedly to recover the 
Customs' costs to process an importer's entries. It ranges from a 
low of $21 to a high of $400 per entry. There has never been proof 
offered regarding the actual cost to Customs of processing a single 
entry or whether that cost varies depending upon the merchandise. 
The MPF was recently raised, over objections of the U.S. business 
community, from 0.17% to 0.19% ad valorem , in an attempt to cover the 
entire cost of Customs' commercial operations. Such coverage is 
precluded by the GATT. Customs has maintained that automation under 
Customs Modernization would lower operation costs, which would be 
reflected by a decrease, not an increase, in the MPF. Further, in 
1987 it was determined that the ad valorem MPF was inconsistent with 
the GATT since it was unrelated to the cost of processing entries. 
That determination is no less valid today. 

Rather than sustaining or increasing the user fee, it would be more 
appropriate to adopt a policy to reduce the number of import 
surcharges, and to modify existing surcharges so that they are 
directly related to the service provided. User fees should be 
dedicated and spent in specified areas (not deposited in the General 
Treasury to balance the budget) . This utilization of user fees would 
be consistent with U.S. international obligations. 

For the record, AAEI ' s members are not opposed to additional fees 
which confer a direct benefit upon the requester of the operation. 
Charges for personnel overtime, keeping a port open after hours, or 
placing a Customs employee on a company's premises are common, and 
have been an accepted part of business practice for years. The MPF, 
however, is not such a charge, but a revenue measure. 

The Customs Dser Fee Is Dnnecessarv For An Effective Customs Service 

Proponents of the MPF argue it allows the U.S. to increase 
appropriation of funds to U.S. Customs, thus increasing "services" to 
those who pay the fee. Nothing can be further from the truth. There 
is no connection between user fees and the level of "service" 
provided by Customs. Noticeable improvements in commercial 
processing and in Customs interactions with the trade community, 
although welcome changes, are not a function of user fees, but of 
Congressional support and a change in Customs' philosophy over the 
past several years. 

The fact that the MPF does not provide increased services to the 
importing community is compounded by the continuing cost of the fee 



88 



to U.S. business and government. Processing and recordkeeping costs 
are taken directly from a company's profits and cost precious time to 
the government. Higher costs of goods are passed to the consumer and 
result in lower sales, in turn reducing industry profits, and thus 
tax revenues to the government. Another cost is the time and money 
spent by U.S. business, Congress and the Administration to eliminate 
the fee which has no support by U.S. business. For these reasons, 
the initial plan for expiration of the fee is crucial. 

Costs To U.S. Business 

Congress and the Administration appear only to focus on one side of 
the ledger. The U.S. government has charged importers hundreds of 
millions of dollars in user fees in recent years in its attempt to 
reduce the budget deficit. However, the issue is not a matter of 
choosing between raising taxes across the board or maintaining user 
fees, nor is it a question of reducing the deficit. Rather, it is 
the problem created by double taxation of U.S. importers with no 
corresponding benefit to those taxed, and despite unanimous 
opposition to the tax. The Customs user fee does not raise enough 
revenue to cover its cost, nor does it benefit Customs or the 
importing community. While deficit reduction is a worthy goal, the 
GATT specifically prohibits import fees for this purpose. 

The MPF has increased the cost to importers beyond the basic fee. 
Many customs brokers charge an additional fee to pay and account for 
the user fee. Whatever the private sector charges to process the 
fee, it is certain that the cost to U.S. government is greater. In 
addition to the fee, importers must still pay contractors hired by 
Customs for inspection of goods as required by the Central 
Examination Stations system. Another cost to importers is created by 
the need to record the user fee as a separate entry on its books. 

The cost to business can also be assessed in terms of competition. 
The user fee is ultimately passed on to the consumer, and even if the 
full cost of the fee is not reflected in the final price, the 
increase can make a large difference in the competitiveness of the 
merchandise. The resulting sales loss lowers profits, and thus, tax 
revenues. Another growing cost to U.S. business created by the MPF 
is the staggering amount of time expended to eliminate the fee in the 
form of meetings, communications and lobbying. Yet, opposition to 
the MPF continues, both in principle and due to the enormous 
financial cost of the fee to business and its impact on profits. 

Costs to the U.S. Government 

The Treasury Department appears to scoff at the idea that the MPF 
results in any costs to the U.S. This is tantamount to saying there 
is no cost in collecting and processing tax returns. Of course there 
is the cost, similar to business, of collecting, processing and 
recording the fee. In fact. Customs has a separate office and staff 
devoted to the processing of user fees. Other costs result from the 
requirement that Customs, the Treasury Department and the Office of 
Management and Budget (OMB) must separate the fee for purposes of 
budget calculations. There is also a loss of tax revenue to the U.S. 
Treasury since the fee comes out of a company's profit. In addition, 
the cost to Congress and the Executive Branch in time spent on 
constant and prolonged negotiations, lobbying and hearings on the fee 
is unquestionable. 

Finally, the cost to the U.S. will be measured in GATT-sanctioned 
compensation or mirror-image taxes on U.S. exports. If the U.S. 
continues its failure to bring the fee into GATT-compliance, its 
trading partners will have a legitimate right to request and receive 



89 



compensation in the form of lower tariffs on imports, thus negating 
the revenue raised. 

GATT Inconsistency 

AAEI understands that political reality must sometimes override 
principle. The need to reduce the U.S. budget deficit without 
raising taxes can cause pressure for adoption of unnecessary 
measures. Customs user fees, despite their inconsistencies with the 
GATT, were imposed in such a climate. Political pressures, however, 
should not override U.S. international obligations or fundamental 
fairness. A GATT Panel Report of November 17, 1989 (page 39) 
determined U.S. user fees imposed for the regular importation of 
merchandise were "simply taxes on imports," and as such, were 
inconsistent with the fundamental principles of the GATT. 

AAEI agrees with the GATT Panel finding, and warned Congress and the 
Administration of the finding in testimony before and after the fee 
became effective. The Treasury Department has also agreed with the 
GATT Panel's determination that the user fee is a revenue-raiser. 
However, Treasury appears to judge its effectiveness by the level of 
revenue raised, not by an increase in the level of Customs Service. 

Some argue that a transaction-based fee may be accepted by the GATT. 
But, such a fee still opens the door for the same fees or taxes on 
U.S. exports. This would reduce the competitive edge of U.S. 
companies in overseas markets, reducing sales, possibly increasing 
the U.S. trade deficit, and definitely reducing profits of exporting 
companies, and in turn, taxes to the U.S. Treasury. 

Further, the U.S. has international obligations in addition to the 
GATT. Treaties with foreign countries which reduce tariffs and grant 
duty-free treatment, such as the U.S. -Canada Free Trade Agreement and 
U.S. -Israel Free Trade Agreement are important to U.S. foreign 
relations. Unilateral preference programs such as the Generalized 
System of Preferences (GSP) and Caribbean Basin Initiative (CBI) 
foster the economic and political stability of U.S. allies. The 
imposition of any type of user fee violates the written provisions of 
these laws and the spirit in which they were created. Exemptions to 
or reductions of the fee enjoyed by free trade agreement countries 
render the fee even more unfair and GATT inconsistent. AAEI does not 
believe Congress or the Administration should allow short-term 
budgetary pressures to remove our country's long-term commitment to 
economic expansion. 

Expiration of the Fee 

AAEI is aware of the budgetary concerns which have allowed a 
unanimously opposed fee to remain in place. However, in reality, the 
surpluses generated each year of the fee's existence more than offset 
the alleged "loss in revenue" to the U.S. Treasury. Due to the ad 
valorem nature of the user fee, since 1987 Customs has collected at 
least $100 million each year over and above its total appropriation 
for commercial operating costs. Therefore, the sole common sense 
solution to the economic and political problems caused by the Customs 
user fee is to mandate the fee's expiration, as scheduled, in 1995. 
Only in this way, can the fee's cost to U.S. business and its 
fundamental unfairness be alleviated. 

Expiration of the fee will not cause lower levels of "service" to 
industry and should not result in budget cuts for Customs. Customs 
is the second largest revenue-producing U.S. agency and will be able 
to sustain its operations and increase its revenue production, as it 
did prior to the fee's implementation, without user fees through 
proper funding. 



90 



Conclusion 

Mr. Chairman and members of the Trade Subcommittee, AAEI strongly 
urges consideration of a budgetary increase for U.S. Customs. If 
budget reductions are. inevitable, we suggest they be carried out with 
an evenhanded approach. Most importantly, the Association stresses 
that the continuation of the Customs user fee is not an acceptable 
solution to U.S. budgetary problems. 

AAEI adamantly opposes continuation of the Customs user fee. The fee 
is nothing more than a tax on imports, levied on importers for 
mandatory Customs "services." Further, the fee is costly, in time 
and money to U.S. business and government. Finally, the GATT is 
quite clear in its mandate that charges, taxes, and fees on imports 
may not cause the favorable treatment of one country over another nor 
be used for deficit reduction. Continued imposition of the fee will 
diminish the U.S.'s position as the leader in world trade expansion, 
especially since no other major industrialized nation imposes such 
fees. 

AAEI recognizes the budgetary pressures on the Administration, but on 
balance urges the Trade Subcommittee to use this opportunity to 
mandate the expiration of the Customs user fee in 1995. 

Thank you, Mr. Chairman, for the opportunity to express the views of 
AAEI ' s members. 

Chairman Gibbons. Thank you, sir. 

I agree with you. Those user fees are just in lieu of taxes. We 
should have done it in some other manner. Perhaps we can get rid 
of them if we ever do a value-added tax. I hope we can get rid of 
a lot of the provisions in the current Tax Code with a vat. 

I don't see anything I object to in your statement. 

Thank you very much for coming. 

The record of today's hearing will remain open until the close of 
business on Friday, April 23, and this concludes our hearing for 
today. 

The committee will meet again on Tuesday next at 10 a.m. to re- 
ceive public testimony on the administration s request for fast-track 
authority for the short term and for extension of GSP, which we 
understand will come from the administration, just an extension of 
the current law. 

And so we will close today and will meet again on Tuesday at 
10 a.m. 

Thank you. 

[Whereupon, at 4:40 p.m., the hearing was adjourned.] 

[Submissions for the record follow:] 



91 



STATEMENT 
ON BEHALF OF THE COPPER & BRASS FABRICATORS COUNCIL, INC. 

BEFORE THE SUBCOMMITTEE ON TRADE, COMMITTEE ON WAYS AND MEANS 
UNITED STATES HOUSE OF REPRESENTATIVES 

BUDGET AUTHORIZATIONS FOR THE CUSTOMS SERVICE, 

UNITED STATES TRADE REPRESENTATIVE, AND 

INTERNATIONAL TRADE COMMISSION 



April 21, 1993 

This statement is submitted on behalf of the Copper & 
Brass Fabricators Council, Inc. ("Council") and its 19 member 
companies ( see Appendix A for a list of the Council's members). 
The Council is a trade association which represents the principal 
copper and brass mills in the United States. These mills together 
account for the fabrication of more than 80 percent of all copper 
and brass mill products produced in the United States, including 
sheet, strip, plate, foil, bar, rod, and both plumbing and 
commercial tube. These products are used in a wide variety of 
applications, chiefly in the automotive, construction, and 
electrical/electronic industries . 

During the budget authorization process, one factor which 
the Council urges the Committee to keep in mind is that of the 
enforcement of this nation's unfair trade laws, particularly the 
assessment and collection of antidumping and countervailing duties. 
Since early 1985, the Council and its member companies have brought 
a series of antidumping and countervailing duty cases before the 
Department of Commerce and International Trade Commission. These 
proceedings have thus far resulted in the issuance of eleven 
antidumping duty orders and three countervailing duty orders 
against imports of brass sheet and strip and of low-fuming brazing 
rod from a total of eleven countries. 

In taking these measures, the Council was reacting to a 
steady influx of dumped and subsidized imports that began in the 
late 1970 's and carried forward into the 1990' s. The United States 
is the most attractive market in the world for copper and brass 
mill products, and foreign firms have aggressively set their sights 
on penetrating it. Unfair, injurious pricing by overseas mills and 
their establishment of subsidiary facilities and related sales arras 
in the United States have been two primary means to this end. 
Confronted by unfair competition from abroad, the Council has come 
to recognize that the continued existence of the United States 
copper and brass mill industry depends not only upon maintaining 
the high quality of its products but also upon protecting itself 
from foreign unfair trade practices. 

The Council's reliance upon the United States' unfair 
trade laws is consequently of vital importance to this industry. 
More precisely, the effective enforcement of the antidumping and 
countervailing duty orders won by the Council is a matter to which 
the United States copper and brass mills assign a top priority. In 
this respect, this industry is basically no different from other 
United States domestic industries that have successfully prosecuted 
antidumping and countervailing duty proceedings. The cost of these 
cases is high, and petitioners understandably expect that the 
unfair trade orders which they have fought so hard to obtain will 
be enforced. 



92 



Unfortunately, as the Council has discovered in its 
cases, enforcement of unfair trade orders is seriously deficient in 
several major respects. First, there is no effective mechanism in 
place by which the Customs Service and Department of Commerce can 
accurately record what antidumping and countervailing duties have 
been assessed and collected on legally entered imports in a given 
proceeding or over-all. This remarkable state of affairs must be 
corrected. Over the last several years, the Council has repeatedly 
asked for a documented and detailed accounting of the aggregated 
duties brought in under its orders. These efforts have produced 
limited and often inconsistent data only after considerable 
checking and special compilation by the agencies. 

While the Council has always been received courteously by 
the Customs Service and Department of Commerce, it has become 
painfully evident that no one truly knows what antidumping and 
countervailing duties are being paid. These data are simply not 
being maintained on a regular basis in a manner that enables the 
agencies to say with any assurance that the unfair trade orders are 
being enforced. Everyone assumes that the duties are being 
collected, but there is no trustworthy evidence to substantiate 
this claim or to ascertain the amounts of the duties. 

This state of affairs has been brought to the attention 
of this subcommittee in previous budget hearings and various 
assurances of corrective action have been provided by the Customs 
Service to the Subcommittee and to our industry. Regrettably, none 
of these assurances have resulted in improvements of the 
circumstances described. 

'The agencies seem to agree that a reliable system is 
lacking and needs to be developed. This goal, however, is 
providing to be elusive and taking far longer to achieve than is 
appropriate. For at least the last several years, the Customs 
Service has been in the process of creating what it calls an 
antidumping/countervailing duty module for its Automated Commercial 
System ("ACS"). This computer-based program is meant to replace 
the "blue-line" program, which the agencies have acknowledged has 
been a total failure. This name derives from the practice by 
import specialists at the ports of underlining in blue pencil 
certain data on customs entry papers for later key-punching by 
someone else into computers. In contrast, the module calls for the 
relevant data to be imputed in the computer's memory at the ports 
in a single step from the customs entry papers. 

It remains to be seen if the module will be successful if 
it ever becomes operational. Even more importantly, once the 
module is running it will be necessary to analyze how useful the 
new arrangement will be. Employment of the computers will assist 
in the handling of the large volumes of data involved, but is no 
guarantee that the data will be properly stored in the computer in 
the first place. It is reasonable to anticipate that constant 
supervision of the module will be required to ensure that all data 
are correctly recorded in the computer's memory. 

A second principal shortcoming in the enforcement of 
unfair trade orders is the agencies' lack of meaningful standard 
procedures and oversight to detect fraudulent attempts by foreign 
exporters and their importers in the United States to circumvent 
antidumping and countervailing duty orders. There are myriad ways 
for parties to undermine antidumping and countervailing duty orders 
fraudulently. There is also the strong temptation to do so, if, as 
the Council believes to be the case, there is among importers a 
perception of lax enforcement. A significant and complicating 
factor in this area is the increasingly large number of U.S. 
importers who are related to their foreign suppliers of dumped and 
subsidized goods. The corporate ties facilitate the opportunity 
for fraud and lessen the chances of discovery. 



93 



What has most struck the Council in regard to enforcement 
is the virtual absence of measures by the agencies to guard against 
fraudulent circumvention and to ensure that all duties owed are, in 
fact, forthcoming. Once again, there seems to be an assumption by 
the agencies that the duties are being collected and that 
everything is running smoothly, but this attitude does not appear 
to be realistic. Unlawful transshipment, misclassif ication, and 
reimbursement of antidumping duties are all prime means to evade 
the impact of unfair trade orders. 

In the Council's cases, there is reason to suspect that 
all of these evasive techniques have variously been resorted to by 
different respondents, and the Council has persistently brought 
what evidence it has had to the agencies' attention. The agencies 
have usually been receptive and cooperative, and in one instance 
this resulted in a short term physical inspection program, but the 
Council has not met with success in securing a long term commitment 
of the agencies' resources. 

The incapacity of the Customs Service to initiate a more 
rigorous enforcement program (regime) for imports subject to unfair 
trade orders than is imposed on imports subject only to regular 
duties must change. The Customs Service should be required to 
establish, and vigorously pursue, a special inspection and 
enforcement program for those imports subject to unfair trade 
orders or other special quantity or added duty restrictions. The 
Council urges that this special inspection and enforcement program 
be mandated in the legislative budget authorization for the 
operations of the Customs Service. This program would entail not 
only responsibilities for Customs Service personnel in the United 
States but also for Customs Service personnel abroad in the 
countries 'exporting dumped and subsidized merchandise to the United 
States. 

Two examples of the need for such a special program may 
be helpful. In the brass sheet and strip cases the opportunity for 
deliberate misclassif ication to avoid the antidumping and 
countervailing duties is considerable. Brass sheet and strip are 
a fungible commodity that can readily be declared for customs 
purposes as some other copper-based alloy or designated as plate or 
foil without detection. Similarly, the Council suspects that the 
presence in the United States of subsidiaries of the companies that 
have been dumping brass sheet and strip in the United States has 
been facilitating improper reimbursement of antidumping duties. 
This latter problem is particularly frustrating, because United 
States unrelated buyers can in this manner be insulated from paying 
the antidumping duties. It is clear that any activity of this sort 
significantly erodes the remedial influence of an unfair trade 
order. It is equally clear that fraudulent circumvention of this 
nature can take place very easily and will only be revealed through 
diligent enforcement. Nevertheless, the agencies for the most part 
have not been able to police these unfair trade orders in a manner 
that assures prevention of illegal circumvention. 

Lastly, just as it is central to the working of the 
statute that antidumping and countervailing duties be paid in full 
when due, so these laws' remedial purpose is eroded when the 
corrective duty is not paid by the first unrelated buyer of the 
imports in the United States. Who pays the duties is as important 
as what duties are paid and when they are paid. To the extent that 
antidumping and countervailing duties are reimbursed or absorbed by 
the foreign exporter or its related importer in the United States, 
the first unrelated purchaser in the United States is shielded from 
payment of these extraordinary duties, continues to enjoy the 
competitive advantage of the unfair pricing, and therefore has no 
incentive to cease buying the dumped and subsidized merchandise. 



94 



Current law is not explicit either in requiring the first 
unrelated purchaser in the United States to pay the antidumping and 
countervailing duties or in barring reimbursement and absorption of 
these duties by the foreign exporter or its related importer in the 
United States. At the administrative level, 19 C.F.R. § 353.26 
prescribes a deduction from United States price, ordinarily on a 
one-time basis only, in the amount of any antidumping duty that the 
foreign producer or reseller pays directly on behalf of the 
Importer or reimburses to the importer. At the time of 
liquidation, the importer of record is required to file a 
certificate as to whether the manufacturer, producer, seller, or 
exporter has absorbed or reimbursed the antidumping duties owed. 
There is no counterpart regulation on the absorption or 
reimbursement of countervailing duties. 

The topic of who pays and who should pay antidumping and 
countervailing duties deserves scrutiny. Absorption and 
reimbursement by foreign exporters and their subsidiaries in the 
United States are a tremendous loophole. The current regulations, 
as interpreted by the Customs Sei-vice and Commerce Department are 
ineffective. Certification by the importer of record is no real 
guarantee against absorption and reimbursement without vigorous 
investigative follow-on by the agencies. Moreover, the Commerce 
Department and Customs Service accept payment of antidumping and 
countervailing duties by related-party importers. This practice is 
extraordinarily destructive of the fabric of the statute and 
enables the first unrelated buyers in the United States to continue 
to receive the same dumped or subsidized prices as before the 
antidumping or countervailing duty order went into force. The 
Council, for one, has repeatedly experienced this evasive 
technique., The practical impact is the prolonging of depressed 
prices in the United States at the expense of the domestic 
industry. 

The Council believes the agencies presently have 
authority to end these practices, but an amendment to both the 
antidumping and countervailing duty laws, by which bonds and cash 
deposits as well as payments of final antidumping and 
countervailing duties would be the responsibility of the first 
unrelated buyer in the United States, would be extremely 
beneficial. Otherwise, import-related injury is simply perpetuated 
by means of absorption and reimbursement of the antidumping and 
countervailing duties by foreign exporters and their related 
importers in the United States. 

Enforcement of unfair trade orders is something that has 
been sadly neglected by the agencies that are charged with 
administering these laws. This omission is extraordinary 
considering the length of time that the antidumping and 
countervailing duty laws have been in force. In the last four 
legislative amendments to these statutes in 1974, 1979, 1984, and 
1988 tremendous attention has been paid to tightening up these laws 
to counteract injurious, unfair pricing by imports, and the 
complexity of these laws and the need for vigilant enforcement have 
grown accordingly. Yet, the agencies responsible for implementing 
the antidumping and countervailing duty statutes cannot say what 
duties are being paid and do not actively seek to root out 
fraudulent circumvention of unfair trade orders to insure its 
prevention. 

It is the hope of the Council that this Committee will 
focus upon the enforcement of antidumping and countervailing duty 
orders during these budget authorization deliberations. It makes 
little sense for the Department of Commerce to devote extensive 
resources to the detailed calculation of dumping margins and 
subsidy amounts and then, through poor enforcement, for the 
antidumping and countervailing duties designed to offset the unfair 



95 



pricing not to be assessed and collected from the United States 
buyers of the dumped and subsidized merchandise. The credibility 
of this nation's trade laws suffers, the protection these laws are 
designed to afford United States domestic industries is diminished, 
and the Treasury Department is denied its revenue. 

An obvious aspect to the question of enforcement is the 
funding entailed for the agencies' programs. As far as the Council 
is concerned, whatever support can be given to the Customs Service, 
and the Department of Commerce as well, in this regard will be 
justified. On a number of occasions the Council has been led to 
understand by these agencies that enforcement of antidumping and 
countervailing duty orders must compete with other, more pressing 
tasks for their scarce resources. Undeniably there are other 
responsibilities to which these agencies must attend, but 
fundamental enforcement of unfair trade orders should not suffer as 
a result. If nothing else, from a purely budgetary standpoint 
energetic enforcement of these laws will very likely result in 
additional revenues for the federal government that is beyond the 
incremental budgetary outlay for the agencies concerned. 

In summary, the Customs Service and Department of 
Commerce should know exactly what antidumping and countervailing 
duties are being assessed and collected on a case-by-case, company- 
by-company basis. These agencies should also be assertively on 
guard against fraudulent circumvention of unfair trade orders and 
of reimbursement or absorption of the duties. If this Committee 
concludes that additional funds will assist in the enforcement of 
the basic activities, then the budget should be increased 
accordingly. 

Respectfully submitted, 

j/seph/L. Mayer / 

^Counsel to the Copper S Brass 
Fabricators Council, Inc. 




96 



COPPER & BRASS FABRICATORS COUNCIL, INC. 

MEMBERSHIP LIST 

May 6, 1993 



ANSONIA COPPER & BRASS, INC. 

7 5 Liberty Street 
P.O. Box 109 
Ansonia, CT 06401 
(203) 736-2651 

CERRO COPPER PRODUCTS COMPANY 

(A member of The Marmon 
Group of companies) 
P.O. Box 66800 
St. Louis, MO 63166-6800 
(618) 337-6000 

CERRO METAL PRODUCTS COMPANY 

(A member of The Marmon 
Group of companies) 
Route 144 - South 
P.O. Box 388 
Bellefonte, PA 16823 
(814) 355-6220 

CHICAGO EXTRUDED METALS CO. 
1601 South 54th Avenue 
Cicero, IL 60650-1898 
(708) 656-7900 



MUELLER INDUSTRIES, INC. 
2959 N. Rock Road 
Wichita, KS 67226 
(316) 636-6300 

OLIN CORPORATION-BRASS GROUP 
427 N. Shamrock Street 
East Alton, IL 62024-1174 
(618) 258-2000 

OUTOKUMPU AMERICAN BRASS 
P.O. Box 981 
Buffalo, NY 14240-0981 
(716) 879-6700 

REVERE COPPER PRODUCTS, INC. 
Seneca Street 
P.O. Box 300 
Rome, NY 13440 
(315) 338-2022 

ULLRICH COPPER, INC. 

2 Mark Road 

Kenilworth, NJ 07033-9979 

(908) 688-9260 



EXTRUDED METALS 
302 Ashfield Street 
Belding, MI 48809 
(616) 794-1200 

HALSTEAD INDUSTRIES 
300 N. Greene St., Suite 400 
Greensboro, NC 27401 
(919) 272-1966 

HEYCO METALS, INC. 
Stinson Drive, RD 9160 
Reading, PA 19605 
(215) 926-4131 

HUSSEY COPPER LTD. 
Washington Street 
Leetsdale, PA 15056 
(412) 857-4200 

METALS AMERICA 

135 Old Boiling Springs Road 

Shelby, NC 28150 

(704) 482-8200 



WATERBURY ROLLING MILLS, INC. 
East Aurora Street 
P.O. Box 550 
Waterbury, CT 06720 
(203) 754-0151 

WESTERN RESERVE MANUFACTURING 

COMPANY, INC. 
5311 West River Road, North 
Lorain, OH 44055 
(216) 277-1226 

WIELAND METALS SERVICE CENTER 
567 Northgate Parkway 
Wheeling, IL 60090 
(708) 537-3990 

WOLVERINE TUBE, INC. 
2100 Market Street, N.E. 
P.O. Box 2202 
Decatur, AL 35609-2202 
(205) 353-1310 



THE MILLER COMPANY 
99 Center Street 
Meriden, CT 06450-1010 
(203) 235-4474 



Copper & Brass Fabricators CourwII, Inc 






97 



TESTIMONY OF HON. SAUL N. RAMIREZ, JR. 
City of Laredo, Texas 

Mr. Chairman, Members of the Subcommittee on Trade: My name is 
Saul N. Ramirez, Jr. I am the Mayor of Laredo, Texas, a city of 140,000 on 
the U.S. -Mexico Border and the fastest growing city in Texas. I am also the 
President and a founder of PRO-NAFTA. PRO-NAFTA is an organization 
led by U.S. local elected officials which has as its goal helping other officials 
realize the positive economic opportunity that the proposed North American 
Free Trade Agreement provides — not just for the border regions but for the 
entire country. PRO-NAFTA is also dedicated to obtaining investment in 
public infrastructure to support the increased economic activity that NAFTA 
will generate. We believe that a key part of realizing this opportunity is 
adequate investment in transportation, communications and environmental 
infrastructure by both the United States and Mexico and adequate staflmg and 
facilities for U.S. agencies such as the Customs Service. 

I am pleased to be submit this testimony regarding adequate funding for 
the U.S. Customs Service. Specifically I want to urge your support for full 
funding for additional customs inspector positions in 1994, and for adequate 
planning and funding for future increases in Customs Service staffing and 
facilities on the U.S. -Mexican border. The Customs Service staff on the 
border already has a heavy workload. Increased trade with Mexico produces 
increased revenue for the U.S. Treasury and U.S. business and workers, and 
resources for Customs (and the Immigration and Naturalization Service) 
should not diminish but also increase. 

When Acting Customs Commissioner Michael Lane appeared before the 
Appropriations Subcommittee on the Treasury and Postal Service recently, he 
said that the Customs Service regards itself "as this Nation's primary border 
agency." Those of us on the border know how important an adequately 
funded and staffed Customs Service is. Before I talk in more detail about the 
Customs Service budget, however, let me give you some statistics. 

The City of Laredo is the largest inland port in the United States. If you 
look at the attached map showing Laredo's strategic location, you can see how 
we serve as the gateway for international trade with the south for all of the 
eastern half and middle of this country. Sixty percent of the truck traffic going 
south from the United States into Mexico goes through Laredo. After Mexico 
signed the General Agreement on Tarifi"s and Trade (GATT) in 1986, truck 
traffic going south increased dramatically. In 1986, 236,000 trucks went into 
Mexico through the Port of Laredo. The figure for 1992 was 652,731. We 
project 772,000 trucks will go through Laredo southbound into Mexico in 
1993. These figures represent a 227 percent increase in traffic southbound or a 
28.3 percent average annual growth rate between 1986 and 1992. 

Similar increases are occurring northbound. According to U.S. Customs 
Service statistics, 178,151 cargo-carrying trucks were inspected crossing from 
Mexico into the U.S. through Laredo in 1991 and 205,771 were inspected in 



98 



1992. This is an average increase of over 75 trucks a day. An additional 
225,864 northbound empty tractor trailer trucks were recorded by Customs as 
crossing into the United States through Laredo, for a total of 438,651 truck 
crossings into Laredo from Mexico in 1992. 

These are the numbers hdJQie implementation of the North American 
Free Trade Agreement. The increases will be even sharper once that happens. 
For example, beginning in the first year of the agreement trucks from each 
country will be able to travel all of the way into the Mexican and U.S. border 
states instead of being confined to a narrow border area. This will greatly 
reduce the number of empty crossings and increase business for U.S. truckers. 
It will also increase the number of Customs inspections needed. 

Laredo is also the major U.S. inland port for rail freight movement into 
Mexico. Railroad car crossings southbound into Mexico through Laredo 
increased from 28,000 in 1986 to 108,000 in 1992 -- an almost 300 percent 
increase in the six year period. Similar increases are seen northbound. 89,921 
rail cars arrived from Mexico through Laredo in 1991 . 101 ,976 arrived in 
1992, and 43,628 in the first two months of 1993. 

At Laredo International Airport, 5,316 aircraft arrived from Mexico in 
1992. In the first two months of 1993, 1,860 aircraft arrived. At that rate the 
1993 figures will show a doubling of aircraft arrivals in one year. Passenger 
enplanements have increased from 25,093 in 1987 to 99,020 in 1992, and 
deplanements increased from 22,719 in 1987 to 84,566 in 1992. Cargo activity 
totalled 84 million pounds of gross landed weight in 1992 and is projected to 
double in 1993, based on current scheduled service. During 1989 only 84 
airports nationwide handled in excess of 100 million pounds of gross landed 
weight. Laredo is poised to join this group during 1993. 

In spite of what one of my fellow Texans has said, the sound we hear in 
Laredo is not the sound of jobs going south but the sound of U.S. owned 
trucks driven by U.S. drivers carrying U.S. materials, parts and products, 
made in U.S. cities and counties by U.S. workers in U.S. owned businesses. 
The sound we hear coming north is the cash register ringing in the U.S. 
Department of the Treasury and in businesses all across the country that are 
making profits and creating jobs at home from increased trade with Mexico. 

The Port of Laredo generated $191 million in duties collected and 
deposited in the U.S. Treasury in 1992. This is up from $151 million in 1991 -- 
an increase of 26 percent in one year alone. 

A fully functioning Customs Service is critical to the success of NAFTA. 
It is important that Customs be prepared when NAFTA becomes effective on 
January 1, 1994. To reach this goal, the Customs Service has established a 
NAFTA Implementation Task Force, consisting of several working groups, to 



99 



deal with various issues within the agreement. Training is being planned for 
both the private sector and for Customs employees. Customs has established a 
national hotline to answer NAFTA-related questions. 

At the local level in Laredo, we have a good working relationship with 
the Customs Service. We applaud some recent initiatives that will make life 
easier for everyone. These include the Primary Lane initiative, whereby 
Customs has committed to staff additional lanes during peak traffic pe;-iods. 
This initiative has dramatically reduced waiting time for trucks, passenger 
vehicles and pedestrians returning to the United States. Currently, however, 
this extra staffing can only be provided at most locations by payment of 
overtime. 

This fact underlines the point I want to emphasize: While the workload 
for the Customs Service at the Port of Laredo has in some cases almost 
doubled, the staffing has increased at much lower rates. The attached charts 
show that there were 25 Import Specialists in fiscal year 1992 and the same 
number as of February, 1993. There were 10 Entry Personnel in fiscal 1987 
and are 12 currently - although the number of persons entering increased from 
15 million to 29 million a year in the same time period. The total number of 
Customs Inspectors at Laredo was 146 in fiscal 1991, went up to 161 in 1992 
and has decreased to 1 56 as of last month. This staff covers three vehicular 
bridges, a rail bridge, and an international airport. In 1992 they coped with 7 
million northbound vehicular crossings. 

The fiscal year 1993 appropriation for the U.S. Customs Service 
included 300 new positions for customs inspectors targeted at meeting needs 
along the Southwest Border. These positions were given six months funding. 
The positions were expected to be filled for half the year, beginning April 1 . 
However, we understand that Customs may be reluctant to fill more than 1 50 
of these positions, unless there is an indication that the positions will all be 
annualized in the fiscal 1994 base budget. The Congress acted wisely in 
putting these much-needed positions in the budget this year. They can make a 
real difference in making initiatives such as the primary lane program 
successful and permanent. I urge that they be fully funded for 1994 and 
beyond. 

The City of Laredo has applied to the Department of State for a 
Presidential Permit to build an additional bridge into Mexico, paid for with 
City funds, that would allow us to move the daily back up of 18 wheelers out 
of our historic downtown district. A relocated or additional railroad crossing 
is also under consideration. As part of the Presidential Permit review process, 
we are looking forward to working with Customs on a comprehensive study of 
lane management, truck routes, and other transportation matters which they 
have suggested to further improve the movement of cargo and people in and 
out of Laredo. This additional bridge is fully justified by our travel forecasts 



100 



that project an increase from 14.5 million to 20 million vehicle crossings 
northbound and southbound per year by the year 2,000. We want to be sure 
that the Customs Service will have the proper staffing to make this bridge 
successful. 

Another issue about which we are concerned is the way in which the 
General Services Administration funds and charges for the physical facilities 
used for Customs Service activities. We understand that, due to a change in 
policy, GSA is charging the agency for rental costs of border stations that far 
exceed actual costs -- and may even be charging rent for facilities that were 
donated. I hope that you will look into this and help ensure that scarce funds 
that are needed for staffing are not "eaten up" by this "cost reimbursement" 
and "return on investment" policy. 

I must emphasize that the smooth movement of goods through Customs 
not only benefits border areas or Texas in particular, but the entire country. A 
survey by the Laredo Development Foundation in 1989 showed that 19 
percent of the trucks going southbound through Laredo carried cargo that 
originated in the Southeast region of the United States, 38 percent originated 
in the Northeast, 30 percent in the Central region, and only 7 percent in the 
Southwest and 5 percent in the West. In states all over the country the 
percentage of exports to Mexico has risen immensely from 1987 to 1991. 
According to figures compiled by the U.S. Department of Commerce, these 
include Georgia, up 249%; Massachusetts, up 130%; Alabama, up 89 %; 
Minnesota, up 141%; Iowa, up 64%; Virginia, up 256%; and Oklahoma, up 
82%, to name a few. 

Businesses located in Maryland did $51 million worth of export trade to 
Mexico in 1991 , according to figures compiled by the International Trade 
Administration of the U.S. Department of Commerce. Maryland's exports to 
Mexico grew 198 percent from 1987 to 1991, 109 percentage points faster than 
export growth to the rest of the world. I have attached to my testimony more 
detailed information on these increases from the ITA's most recent report. 

We in Laredo will be one link, but all the pieces of the chain will come 
from throughout the country. As an example, the Wal-Mart located in 
Laredo, Texas, which serves a primarily Mexican market, has the highest sales 
volume of any Wal-Mart store in the United States. Wal-Mart Stores' 
corporate headquarters is in Bentonville, Arkansas. We derive benefit from 
sales taxes and employment, but the toys, appliances, clothes and other 
accessories sold there are made in many cities throughout the country. Wal- 
Mart's experience in Laredo is duplicated by other American retail giants such 
as Sears (headquartered in Chicago), Montgomery Ward, and J.C. Penny 
(Dallas). This kind of activity will be multiplied many fold if the North 
American Free Trade Agreement is approved. 



101 



Finally, let me point out that Laredo is not alone among border 
communities experiencing the kind of increase in commerce that I have cited, 
although our increases are the largest and most dramatic. I am submitting for 
the record a list of border trade-related infrastructure and stafiing needs for 
agencies under the purview of this subcommittee compiled by the Border 
Trade AHiance from border communities from Texas to California. 

This concludes my testimony. Again, I seek your support for Customs 
funding and thank you for the opportunity to submit this testimony for the 
record. We look forward to working with you. 



102 




*. 

^ 



exas 
cationMap 




103 



Year 


SB 


1981 


254.136 


1982 


197,120 


1983 


185,463 


1984 


222,871 


1985 


235,161 


1986 


236,863 


1987 


274,743 



Laredo Bridge Truck Traffic 

Laredo Bridge System U.S. Customs 

(trailers, 2-t- aiJes tractors) (loaded trucks) 

NB SB NB 

{812} Not Applicable Not Applicable Not Available 

(630) Not Applicable Not Applicable Not Available 

(592) Not Applicable Not Applicable Not .Available 

(712) Not Applicable Not .Applicable Not Available 

(751) Not Applicable Not Applicable Not Available 

(757) Not Applicable Not Applicable 117,275 

(878) Not Applicable Not Applicable 150,821 

350,448 (1,120) Not Applicable Not Applicable 160.084 

405,914 (1,297) Not Applicable Not Applicable 172,149 

475,028 (1,518) Not Applicable Not Applicable 190.985 

554,692 (1,772) Not Applicable Not Applicable 183,048 

652,731 (2,085) Not Applicable Not Applicable 212,787 

772,000 (2,466) Not Applicable Not Applicable N.A. 



(375) 
(482) 
(511) 
(549) 
(610) 
(585) 
(680) 



1990 
1991 
1992 
•1993 
' Projected 

The Laredo Bridge System data show that prior to the devaluation of the Mexican peso and the U. S. 

recession in 1982, truck traffic levels were quite high—truck traffic in 1981 was about the same as the 

1987 level. As a result of the devaluation and other economic problems, truck traffic plunged in 1982, 

and remained low in 1983. Since 1983, truck traffic has been rapidly increasing, surpassing its pre-1982 

level in 1987. However, after the signing of GATT in 1986, the truck traffic has been dramatic averaging 

an 18.4% increase annually. The projected truck traffic total for 1993 at this 18.4% level should reach or 

surpass 772,000 even without NAFTA to this point. 



The Laredo Bridge System data indicated that while truck traffic has grown phenomenally, overall traffic 
levels for all types of vehicles have grown at a more moderate pace. Non-truck traffic grew by about 
19.5 percent between 1986 and 1992. 



According to the Laredo Bridge System data, truck traffic currently comprises about 9.2 percent of total 
southbound bridge traffic as opposed to an average of 4.0 percent every year from 1981 thru 1986. Total 
traffic volumes are shown in Table 3. 



104 



F*E» sse n Q o r E! n p> 1 ^ n ^ m e? n t: 



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CSrcDss Landod W^lg|-it 




T390 tss-t -I 9 -a; 



L_Eirecio I nt^rn^tio n^ I >A.irp>orit 



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105 



PORT OF LAREDO 
WORKLOAD AND STAFFING STATISTICS 



PERSONS ARRIVING 

FY 91 30,076,343 

FY 92 29,015,712 

PEDESTRIANS 
FY 91 4,342,873 
FY 92 5,691,499 
FY 93* 1,817,035 

PVT AIRCRAFT ARRIVALS 
FY 9 1 5,650 

FY 92 5,316 

FY 93* 1,860 

TOTAL VEHICLES ARRIVING 
FY 91 6,946,098 
FY 92 7,488,885 

VEHICLES ARRIVING WITH CARGO 
FY 91 178,151 
FY 92 205,771 

FY 93* 91,801 

RAIL CARS ARRIVING 
FY 91 39,921 

FY 92 101,976 

FY 93* 43,623 

FORMAL ENTRY 

FY 92 146,682 

REVENUE (DUTY) 

FY 91 $151,544,602 

FY 92 $190,903,402 



STAFFING 




Import. 


Sp 


BC. 


FY 


91 







FY 


92 




25 


FY 


93* 




25 



Entry Personnel 



11 
12 



Inspectors 

146 
161 
156 



*FY 93 FIGURES ARE THROUGH FEBRUARY 28, 1993 



106 



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107 



MARYLAND: EXPORTS TO MEXICO, 1987-S1 

Maryland's Exports to Mexico Grew 198% from 1987 to 1991 
1 09 Percentage Points Faster Than Export Grov/th to the Rest of the V^orld 



Million S 



Percent Chanae. 1967-91 




1987 1988 1989 1990 1991 



50 100 150 200 250 



MARYLAND'S 1991 EXPORTS TO MEXICO WERE S51 MILLION 

Maryland's merchandise exports to Mexico grew 198 percent from 1987 to 1991, rising 
from S17 million to $51 million. The percentage increase far exceeded 1987-91 growth 
in Maryland's exports to the rest of the world (89 percent) as well as growth in total U.S. 
exports to Mexico (128 percent). 

During 1990-91, Maryland's exports to Mexico fell 5 percent, declining by S2.6 million. 
In 1991, Maryland ranked 35th among all 50 states and the District of Columbia in the 
value of exports to Mexico. 

Mexico in 1991 ranked 17th among Maryland's 163 export markets, up sharply from 
26th place in 1987, when the state shipped products to 148 foreign markets. 

In 1991, Maryland shipped 1.3 percent of its exports to Mexico, up from O.S percent 
in 1987. Tne share of expons purchased by Mexico hit a high of 1.7 percent in 1990. 

Maryland's exports to Mexico in 1991 were broad-based. Key export sectors were: 
primary metal industries (515. 7 million), industrial machinery & computers (58. 3 million), 
chemicals (56. 1 million), electric &. electronic equipment (54.8 million), and transportation 
equipment (54. million). Tnese five industries together accounted for 77 percent of the 
state's total merchandise expons to Mexico in 1991. 

Maryland boosted exports of a range of manufactured goods to Mexico over the 1987- 
91 period. Among the sectors that posted sizable and steady gains were: paper products 
(up from 516 thousand to 5407 thousand), chemical products (from 51.8 million to 56.1 
million), primary metal industries (from 5976 thousand to 515.7 million), and fabricated 
metal products (from 5257 thousand to 51.0 million). 



108 



MARYLAND: EX_PORTS TO MEXICO, 1987-91 

Maryland's lop Five Exports to Mexico 
Millions in 1991 Totaled $39 Million 




MARYLAND'S EXPORTS 

(Th, 



TO MEXICO, BY INDUSTRY SECTOR 

joiJOdi of Dolliri) 

19?7 ■ 1968 1939 IS 



IWl 



I AGRICULTURE. FORESTT^Y & nsHING 



r268 



301 



Agncullurc -c 
Agncullure - li 
Foralry 

Fsfcing AHunn 



I MINING 

Mcul Mining 
Ccal Mimng 
OG AGaa 

Non-McullicMincraLi 



I MANUFACTURING 



Food Produ 
Tobacco Produce 
Tcnik Mill Producu 
Apparel 

Lumber tn Wood Producu 
Furniture ii pcaurea 
Paper Prtxjueu 
Pnnlmg iPuHii^.mg 
O.caial Ptoducti 
Refined Pelroleunj Producu 
Rubber i Plaslic Producu 
LcaL^c■ Producu 
Sonc, Qay A Glass Products 
Pricary McLaJ Induiihca 
Fahncaled Metal Producu 
Industrial Machinery & Conroi 
Eiceinc &E]ecL*on>c Ecuipmc 
Trans porta u on Equtptarnt 
SlientifK: i Mcasurins Ir^aruc 
Miscellaneous Manufagu 



MD'S EXPORTS TO THE WORLD 
MEXICO'S SHARE OF MD'S EXPORTS 



?76 


:7 

1.03O 


167 
5.076 


575 
i:i.766 


553 

15,746 


nsT 


631 


KS 


907 


1,014 


5^47 


4,692 


4.S92 


n^a 


aji7 


l.<«3 


::,7i6 


:.so3 


:.io7 


4304 


591 


3-G 


1.119 


6:a 


3.992 


IJ<K 


16i« 


:.049 


4.652 


2370 



1 OTHER 


1.439 


534 


673 




<2 


505 1 


Scrap & Waste 

Seirond Hand Gcods 

Military .t Other .Mis.ccllancous Items 


1.290 
123 
25 


4.47 
10 
78 


440 



234 




18 



443 

60 


IMD'S EXPORTS TO MEXiCO 


17. 044 


33.212 


Z12A^ 


53 


~il 


50.728 i 



3,173.707 
O.S% 



3.215576 
1.7ro 



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67 



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9 780 60"41 



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